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What Does the Capital One/Discover Merger Mean for Small Businesses?

Motley Fool - Mon Apr 15, 5:00PM CDT

A woman tapping her credit card on a payment reader being held out by a florist in a flower shop.

Image source: Getty Images

Small business owners don't love paying credit card processing fees. If you own a restaurant or brick-and-mortar retail business, losing 2.24% or more of every transaction can feel like a painful cost of doing business. The recently announced Capital One/Discover merger, along with some other developments in the credit card industry, could bring big changes to credit card swipe fees.

But will any of the changes to swipe fees really make a big difference for small businesses? We talked with a credit card expert to find out.

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Capital One/Discover merger: No big relief for small businesses

Capital One recently announced that it is buying Discover (and the Discover payment network) in a deal that could transform the credit card industry. By owning Discover's payment network, Capital One could potentially compete with Visa and Mastercard and offer merchants and retailers (including small businesses) a better deal on swipe fees.

Eric Cohen, CEO and Founder of Merchant Advocate, a company that helps businesses save money on credit card processing rates and fees, said that big corporate merchants are most likely to benefit from the Capital One/Discover merger.

"Given the ongoing conversation and potential regulations, it's far too early to know if there is upside for small businesses," Eric Cohen said. "However, in the past, similar large-scale mergers have mostly worked to benefit larger corporations instead of the everyday mom-and-pop shop."

For example, Capital One has stated that it wants to work more closely with merchants to drive more sales for them while creating good deals for consumers. No one knows yet exactly what that might look like, but it could involve better offers from merchants, premium customer experiences, and specialized customer loyalty programs. Of course, most of those capabilities require "big business" size and scale that are beyond the reach of small businesses.

And any big changes from the Capital One/Discover merger might not happen anytime soon. The deal still requires federal approval from the FTC, which is not guaranteed -- the U.S. government has recently acted against a few other high-profile mergers, such as JetBlue's attempted purchase of Spirit Airlines.

"If the deal does pass and Capital One chooses to push Discover as a third network without increasing interchange costs, merchants may see some relief in the years ahead, but it will be far from immediate," Eric Cohen from Merchant Advocate said.

Visa and Mastercard $30 billion settlement: Small businesses won't see big changes

Another big development in the credit card world was announced on March 26, 2024, when Visa and Mastercard agreed to reduce credit card swipe fees for merchants. This deal made big headlines, as the approximate cost savings for merchants are expected to be about $30 billion over five years.

But if you drill down into the details, this is less of a big deal for small business owners. Visa and Mastercard are only agreeing to reduce swipe fees by about four basis points (0.04%), and only for three years. So if your small business runs $100,000 worth of payments through Visa or Mastercard credit cards per year, you might save about $40.

What should small business owners do about swipe fees?

You might not be able to reduce the costs of credit cards in your role as a small business owner. But you can do more to reap the benefits of credit cards in your life as a credit card customer. Get a small business rewards credit card. Try to run more of your everyday (and monthly) business spending through a credit card that actually pays you some valuable rewards.

Some of the best business credit cards pay up to 4% or 5% cash back on everyday business spending categories. You can also earn valuable travel rewards and welcome offers with tens of thousands of bonus points. Rewards credit cards are a good way for small business owners to get a cut of the swipe fee action. You can turn credit card swipe fees from a painful cost of doing business into extra "fun money" for your personal finances.

Bottom line

Despite the big headlines about the Capital One/Discover merger and the Visa and Mastercard $30 billion swipe fee deal, small business owners are not likely to see big changes or cost savings anytime soon. Credit card processing fees are a big part of everyday payments activity, and ideally the convenience for your customers is worth the cost to your business. But small business owners still have options to get a bigger cut of those fees: Use the best rewards credit cards in your everyday spending as a company owner and in your personal life.

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We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool recommends Discover Financial Services and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

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