FILE - In this July 30, 2019, file photo, the logo for Capital One Financial is displayed above a trading post on the floor of the New York Stock Exchange.NEW YORK — Capital One Financial said it will buy Discover Financial Services for $35 billion, in a deal that would bring together two of the nation’s credit card companies as well as potentially shake up the payments industry, which is largely dominated by Visa and Mastercard.
“This marketplace that’s dominated by the big players is going to shrink a little bit more now,” said Matt Schulz, chief credit card analyst at LendingTree. With its purchase of Discover, Capital One is betting that Americans’ will continue to increasingly use their credit cards and keep balances on those accounts to collect interest. In the fourth quarter of 2023, Americans held $1.13 trillion on their credit cards, and aggregate household debt balances increased by $212 billion, up 1.2%, according to the latest data from the New York Federal Reserve.
At the same time, the two lenders have had to boost their reserves against the possibility of rising borrower defaults. After battling inflation for more than two years, many lower- and middle-income Americans have run through their savings and are increasingly running up their credit card balances and taking on personal loans.
Beyond boosting bank deposits and loan accounts, the acquisition would give Capital One access to the Discover payment processing network. While smaller than industry giants Visa and Mastercard, the Discover network will enable Capital One to get revenue from fees charged for every merchant transaction that runs on the network.