Topline
A $35 billion merger between Capital One and Discover that would make Capital One the nation’s largest credit card issuer cleared a major regulatory hurdle this week, according to multiple outlets, as the Justice Department told antitrust officials it did not find reasons to block the deal, paving the way for a potentially historic shakeup of the American credit card space.
The memo was sent this week. (Photo by Win McNamee/Getty Images)
Key Facts
A Justice Department memo clearing the deal was sent to the Federal Reserve and Office of the Comptroller of the Currency, according to Bloomberg, which noted the two regulators will ultimately have to sign off on the acquisition.
Under the merged company, Capital One would gain roughly 300 million credit card holders after acquiring Discover, tacking on to its over 100 million customers.
The merger would make Capital One the largest credit card issuer in the U.S. by balances, Reuters reported.
Approval from regulators could reduce Visa and Mastercard’s strong hold on consumer credit card payments, according to an analysis from Northwestern University’s Kellogg School of Management, which said the merger “could lead to a realignment” of the credit card industry if Capital One were to transition Visa and Mastercard customers to Discover (Capital One currently issues credit cards on Visa and Mastercard’s networks).
Capital One could also attract new customers by issuing cash back debit cards already offered by Discover that tend to attract lower-income consumers, the analysis said.
Capital One, Discover and the Justice Department did not immediately respond to Forbes’ request for comment.
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Contra
Critics such as Sen. Elizabeth Warren, D-Mass., have argued the merger would increase fees and credit costs for consumers. A University of California, Berkeley analysis also noted the merger would bolster Capital One with a “substantial share of the non-prime credit card market,” which typically refers to borrowers with credit scores of less than 660, potentially enabling the company to boost interchange fees (transaction fees charged between the merchant’s bank and the cardholder’s bank).
Is The Capital One And Discover Merger Finalized?
Not yet. The Federal Reserve and Office of the Comptroller of the Currency still have to sign off on the deal and could even challenge it, The New York Times reported, adding analysts expected the Justice Department was the most likely of the three federal agencies to try and buck the deal.
What Concerns Did The Biden Administration Have About The Merger?
The Justice Department, which can sue to challenge mergers, was more skeptical of the deal under the Biden administration, relaying concerns to regulators about how the merger between the two large credit card firms could hinder competition and impact first-time credit card holders, The New York Times reported.
Key Background
The merger between Capital One and Discover was first announced early last year as an all-stock transaction valued at $35.3 billion. The deal may have faced more resistance under former President Joe Biden’s administration, which set a record for enforcement actions to fix or outright block mergers in the year ending Sept. 30, 2022. In addition to cracking down on Big Tech deals, Biden’s DOJ sued to stop Visa’s $5.3 billion acquisition of fintech firm Plaid, arguing the deal would have helped Visa eliminate a competitive threat presented by Plaid before the latter company “had a chance to succeed.” The merger was abandoned after the DOJ’s challenge. Though time will tell how the Trump administration plans to navigate larger antitrust matters, the Justice Department’s decision to not challenge the Capital One merger could be indicative of a more lax approach than the Biden administration’s. Justice Department staffers were divided about whether the deal should be challenged, according to an unnamed person familiar with the decision cited by Bloomberg, which reported the department’s new antitrust division chief Gail Slater found a lack of evidence needed to oppose the merger.
Further Reading
Capital One Deal for Discover Clears Justice Dept. Hurdle (New York Times)
Capital One-Discover Deal Waved Ahead by Antitrust Officials (Bloomberg)
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