ICLE White Paper Anticipates Consumer Benefits from Proposed Capital One-Discover Merger
PORTLAND, Ore. (July 23, 2024) – Capital One Financial Corp.’s proposed $35.3 billion acquisition of Discover Financial Services is likely to yield significant benefits to consumers and create a viable new competitor to both existing large banks and to the payment-card-network space currently dominated by Visa and MasterCard, a new International Center for Law & Economics (ICLE) white paper finds.
Authored by ICLE Senior Scholars Julian Morris, Eric Fruits, and Ben Sperry, Nonresident Scholar Todd J. Zywicki, and Director of Innovation Policy Kristian Stout, the paper applies law & economics methodologies to evaluate the merger’s likely effects, with a particular focus on (1) the convenience and needs of the communities to be served by the combined organization and (2) competition in the relevant markets. Those are the criteria the U.S. Office of Comptroller of the Currency (OCC) and the Federal Reserve must apply in vetting the proposed deal, public comments on which must be submitted by tomorrow.
The authors conclude:
- By switching its debit cards to Discover’s payment networks, Capital One might offer more attractive products to depositors. In particular, it could expand access to free checking accounts with no minimum balance requirements to a wider range of low-income consumers. And it could offer debit cards with cashback to lower-income consumers who would not qualify for credit cards. The benefits for this important underserved community could be enormous.
- In combination, Capital One and Discover would be the sixth-largest U.S. bank by assets. Cost savings and other synergies could make it a more effective competitor in the large national bank market, driving improvements in its own offerings, as well as among other, similarly sized banks that serve large segments of the U.S. population.
- The combined Capital One-Discover would become the third-largest credit-card issuer by purchaser volume, after J P Morgan-Chase and American Express. As with its banking operations, its scale and innovative approach could drive improvements both directly for its customers, and indirectly for the customers of other banks. In particular, it would likely lead to significant reductions in fraud, which could result in a virtuous cycle of increased use and acceptance.
- Discover’s credit-card network is currently the fourth-largest in the United States, accounting for only about 4% of payment volumes and thus trailing far behind Visa, MasterCard, and American Express. Through these investments, especially in fraud-detection and prevention, and the resulting network effects, Capital One may be able to leverage Discover’s card network to allow it to compete more successfully.
The full white paper can be downloaded here. To schedule an interview with one of the authors, contact ICLE Media and Communications Manager Elizabeth Lincicome at (919) 744-8087 or [email protected].