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Capital One Plans Purchase of Discover to Build Credit Card Colossus

The mega bank intends to buy the fourth-leading credit card network in the US.

A Capital One Bank location on a city street corner.
Photo by Can Pac Swire via CC BY-SA 2.0

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A newly combined entity may soon sit atop the credit card industry. 

Capital One plans to acquire Discover Financial Services in a deal that could be announced as soon as Tuesday, according to a Wall Street Journal report. The merger would create an all-in-one credit card titan.

Undiscovered Territory

It’s been a rocky few years for Discover, which nonetheless has long been pursued as an acquisition target for banks and tech companies alike looking to expand their financial services portfolios. In January, the credit card lender said its fourth-quarter profit fell 62% as it struggled to rebound from a compliance scandal that ultimately led to the resignation of CEO Roger Hochschild in August. 

And while its payments network isn’t quite at the heights of Visa or Mastercard, it’s large enough to appeal to a credit card lender like Capital One:

  • By total purchase volume, Discover’s network ranks fourth, with Americans charging roughly $211 billion to their Discover cards in 2022, according to a recent Capital One research report. Visa ranks first ($5.83 trillion), Mastercard second ($2.44 trillion), and American Express third ($1.08 trillion).
  • Capital One, the ninth-largest bank in the nation, employs both Visa and Mastercard for most of its credit cards. The company will likely switch at least some of those cards to Discover following the acquisition, according to the WSJ’s reporting, expanding their cardholder base in the process and folding in Discover users, who tend to have high credit scores.

Together, the two companies would create the largest US credit card company by loan volume, according to data from Bloomberg Intelligence.

Buying on Credit: Will that be cash or credit? Neither. The all-stock deal will likely value Discover at a premium on its current $28 billion market valuation, sources told the WSJ (Capital One has a market cap of around $52 billion). The massive deal would continue 2024’s M&A U-turn from last year’s dealmaking drought. Through the first month and a half of the new year, dealmaking volume has spiked 90% compared to 2023 levels.