Capital One's bid for Discover carries expectation that Americans won't slow credit card use
NEW YORK (AP) — Capital One Financial is betting that Americans will keep shopping and use a credit card to pay for their purchases at stores and on the internet.
Capital One announced Monday that it would buy Discover Financial Services for $35 billion. The combination could potentially shake up the payments industry, which is largely dominated by Visa and Mastercard.
The deal marries two of the largest credit card companies that aren't banks first, like JPMorgan Chase and Citigroup, with the notable exception of American Express. It also brings together two companies whose customers are largely similar: often Americans who are looking for cash back or modest travel rewards, compared to the premium credit cards dominated by AmEx, Citi and Chase.
“This marketplace that’s dominated by the big players is going to shrink a little bit more now,” said Matt Schulz, chief credit card analyst at LendingTree.
In a call with investors Tuesday morning, Capital One executives said they planned to invest heavily into expanding the acceptance of Discover by consumers. While Discover is “almost universally” accepted by merchants, there’s a perception by consumers that Discover is less accepted in the U.S.
Capital One expects Americans to keep using their credit cards and maintain balances on those accounts to collect interest. In the fourth quarter of 2023, Americans held $1.13 trillion on their credit cards, and aggregate household debt balances increased by $212 billion, up 1.2%, according to the latest data from the New York Federal Reserve.
As they run up their card balances, consumers are also paying higher interest rates. The average interest rate on a bank credit card is roughly 21.5%, the highest it’s been since the Federal Reserve started tracking the data in 1994.
Capital...