capital one

You’ve probably already read that Capital One will be, subject to regulatory approval, buying Discover in a a $35.3 billion all-stock deal.

The deal makes quite a bit of sense, although maybe not on the surface.

Capital One has a large sub-prime portfolio and Discover is a brand full of those early in their credit journey. 

But there are some other interesting implications.

For one, could we eventually see Discover IT cash back be convertible to Capital One Miles?

Moreover, I’ve talked a lot about the Credit Card Competition Act of 2023 and how it would impact rewards from cards issued on the Visa and Mastercard network. But keep in mind (or learn for the first time 😉 ) that cards issued on their own network have a carve-out under the act. 

While a bank using Visa or Mastercard for processing would have to allow for an alternate network, Amex and Discover, as banks issuing cards that run on their own network, have an (unfair in my view) carve out should the Act pass. 

If Capital One and Discover are one company, then Capital One has a new hedge in which they’d be able to run issue a Discover card that runs on the Discover network – free of any alternate network when the card is run. 

Now, I’ve long thought the chances of the Durbin-led act passing are slim – but if someone at Capital One knows something I don’t (like if the odds of it passing are higher than I think), then this could turn out to be one of the shrewdest financial institution moves of all time.

Of course, that could have nothing to do with this, but it sure is interesting to think about. 

Either way, at the very least, adding not just a credit card issuer but a credit card processor to the Capital One brand is absolutely huge – so we’ll see where this goes.


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