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Credit card customers have likely seen the recent news about Capital One buying Discover®, but what does this big deal really mean for people like you? Based on industry trend analysis and reports from experts, there are many reasons to hope that the Capital One-Discover merger could ultimately be good news for credit card customers.
By owning Discover's payment network, Capital One has a chance to create interesting new rewards credit card products, and even negotiate better deals with Visa and Mastercard. This merger is not just good news for Capital One; it could be good for the entire credit card industry by creating more competition against the biggest payment networks (Visa and Mastercard).
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We interviewed Eric Cohen, CEO of Merchant Advocate and an expert on credit cards and merchant services, to see what kinds of fun new credit card offers might arise. It's still in the early days of the Capital One-Discover merger, but there are several possibilities for how credit cards could change. Let's look at a few.
1. Better deals from Visa and Mastercard
One of the big questions around the Capital One-Discover merger is: How will Capital One use its newly purchased Discover payment network? Capital One currently uses Visa and Mastercard to process payments on its credit and debit cards. But by owning Discover's network, Capital One could have some new flexibility. The bank could keep processing some payments with Visa and Mastercard. Or it could go in a new direction.
"Capital One may plan to offer Discover as a competitive network to Visa and Mastercard," Eric Cohen said. "Another option is that Capital One stops issuing cards with Visa and Mastercard and pushes Discover as their primary network. What we do know for sure is that if the deal goes through, Capital One will become one of the largest issuers in the U.S. The hope for credit card customers is that more competition among the networks will ease some of the financial burden of processing fees on merchants, but that will depend on what approach Capital One takes."
Capital One has already announced that it plans to move all debit card payments to its newly acquired Discover payment network. The future of Capital One's credit card processing relationships with Visa and Mastercard remains to be seen. But if Visa and Mastercard end up negotiating a better deal with Capital One to keep Capital One's credit cards on their payment networks, it could lead to better rewards or new products for Capital One and Discover credit card customers.
2. Creative new merchant rewards and special offers
When it announced the deal to buy Discover, Capital One strongly emphasized that it wants to use the Discover payment network to collaborate more closely with merchants. No one knows exactly what this looks like for future product launches, but Capital One could start to offer more specific customer loyalty programs, creative incentive programs, special offers, and other win-win deals for credit card customers and merchants (retailers, restaurants, e-commerce sites, airlines, and more).
What if you could get more personalized, helpful discounts from your favorite merchants, or get better reward points for shopping frequently at your favorite brands? Capital One might soon have the ability to get more creative on all of those fronts. Cohen believes the Capital One-Discover merger could also lead Capital One to offer new higher-end luxury credit cards -- and some merchants will pay higher credit card processing fees to make that card possible.
"Capital One currently offers some great programs, so it is likely that they will use this opportunity to bolster the perks offered on their credit cards and target new customers through these benefits," Cohen said. "They could choose to mirror similar Visa and Mastercard offerings, or even strengthen the perks on Discover cards to push consumers to increase usage. In this scenario, Capital One owns Discover, whereby they could also choose to increase interchange rates to pay for more enticing rewards, which would make Discover more expensive for merchants to accept, potentially expanding their portfolio into the luxury card brand arena."
Bottom line
No one knows for sure if the Capital One-Discover merger will happen, because it still has to go through regulatory approval by the Federal Trade Commission (FTC). But if the deal goes through, it could bring massive changes to the credit card industry. Many of these changes could ultimately be good for credit card customers, by creating more competition and unlocking innovation for interesting rewards credit cards.
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