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Approved last month, experts suggest that the much-anticipated deal could herald a new era for the credit card market, but politicians are less enthusiastic.
The Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency (OCC) gave the merger approval in April 2025.
“This is an exciting moment for Capital One and Discover,” said Richard Fairbank, founder, chair and CEO of Capital One.
“We understand the critical importance of a strong and competitive banking system to our customers and our economy, and we appreciate the thoughtful and diligent engagement of our regulators as they thoroughly reviewed this deal over the past 14 months”
Approval had seemed in the balance at times, but the merger was ultimately passed, and some believe it could herald a shakeup in the credit card market, breaking the grip of Visa and Mastercard.
"I think this will have an impact on the credit card market. It’s been a duopoly until now, but with Capital One and Discover coming together, they could become a more viable player in this space,” said Rutger van Faassen, founder and CEO of the Informationbanker, a New York-based advisory group.
Although he acknowledged that from a network perspective the new organisation will still be smaller than, and behind, American Express, van Faassen pointed out that in terms of credit card balances, “the combined entity would be a leader”.
“Together, they’d hold more balances than JPMorgan and Citi. It will be very interesting to see what they bring to market and what kind of pressure that puts on competitors,” he said.
Another US giant
The merger brings about a new closed-loop network, given that Discover operates its own payment network, whereas Capital One mostly issues cards on the Visa and Mastercard rails.
The combined entity could scale up Discover’s network and reduce dependence on Visa and Mastercard.
However, the two main schemes have near-universal global acceptance, while Discover still lags, particularly outside of its home in the US. Such a big network gap will not be easy to close.
“Capital One is known as an innovative, data-first company, often at the cutting edge of new developments. It’ll be interesting to see what they do with this,” said van Faassen.
“That said, these deals can bog companies down. It wasn’t a complete home run out of the gate.”
He added that when something like this is announced, firms start preparing, but if regulatory approval is needed, everything gets put on hold.
“For at least a year, things can stall. So while we may not see immediate changes, there’s reason for optimism. Discover has had a unique business model, and this isn’t just two legacy players merging, they both present themselves as more fintech-like. It’s an interesting combination."
Despite promising opportunities, which could be enhanced by the offering made to merchants to incentivise them, van Faassen cautioned that outcomes for Europe may be less beneficial.
“The downside for competition, particularly in Europe, is that this means yet another American company dominating the space,” he said.
“It doesn’t really solve the underlying issues for Europe. That said, it’s a positive development for the US, as it could drive innovation and put downward pressure on prices.”
The EU has recently been preoccupied with payments sovereignty, and has argued the need for a homegrown alternative to the dominant US schemes.
Adding another US competitor will do little to ease its concerns in this area.
Increased competition?
Questions of sovereignty aside, Geoffrey Barraclough, founder of the Business of Payments, said that “combining Discover’s global acceptance network with Capital One’s payment volume, will bring critical mass to the task of building a credible challenger to Visa and Mastercard”.
Barraclough added that with these two players so dominant, a serious competitive move by Capital One would be welcomed by retailers and card issuers in Europe, for example.
“The first step could be for Capital One to issue co-badged cards in the UK where Discover already has good acceptance at large merchants.”
It is likely that the merger could also increase competition on both the issuing and acquiring sides of the payments market.
For example, by combining Capital One’s large customer base with Discover’s existing network infrastructure, the new entity could offer an integrated alternative for both merchants and cardholders, echoing the model American Express uses.
Over time, this strategic move may also prompt other large issuers to consider building or acquiring their own networks as a way to reduce long-term reliance on Visa and Mastercard.
However, no one should anticipate a revolution, and for now, Visa and Mastercard are likely to stay on top of the payments ecosystem thanks to their wide reach and their ability to move with the market, as demonstrated by their forays into crypto and account-to-account (A2A) payments in recent years.
Not a done deal
The merger may also not be fully out of the woods yet. In early May 2025, US Senator Elizabeth Warren and Congresswoman Maxine Waters formally asked the Federal Reserve to reconsider its approval of the merger, invoking their right as commenters under the Fed’s Rules of Procedure to trigger a required response.
“Merchants would have no choice but to accept the terms dictated by Capital One’s network, since they need to access the customers of the largest credit card issuer in the country,” the lawmakers warned.
“The market power created by combining Capital One’s card base with Discover’s network explains why Capital One CEO Richard Fairbank described the acquisition of the network as a ‘holy grail.’”
The lawmakers also argued that the Federal Reserve failed to consider recent developments in the US.
These include President Trump’s tariffs, the onboarding of the Department of Government Efficiency (DOGE) at the Federal Deposit Insurance Corporation (FDIC), rising consumer stress in the credit card market, and efforts by Trump and Elon Musk to overhaul the Consumer Financial Protection Bureau (CFPB).
They warned that the Federal Reserve is enabling the creation of the largest credit card issuer in the country just as the only agency with legal authority to regulate it is under threat, and called for an immediate stay and reconsideration of the merger approval.
However, the likelihood of them making a difference feels minimal at this point, considering the majority that the Republicans hold at all levels of government. This makes their voices, however loud, less likely to garner concern.
Going forward, it is likely that the merger could shake up the credit market, although the extent to just how much difference it can make on a global scale is yet to be determined.
It is an open question as to whether the global schemes that have maintained such demonstrable influence of payments can be disrupted, much as that might be desirable to regulators.
