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Capital One to Regulators: Discover Deal Will Increase Competition

Capital One and Discover Financial

Capital One says its planned $35.3 billion purchase of Discover will boost competition.

That’s according to a report Thursday (March 21) by Reuters, citing information shared by a source who had seen the bank’s regulatory application.

The filing also argues the deal won’t hinder competition in the credit card space, as the combined company will make up about 13% of credit card purchasing volume, which Capital One contends is the best measure of credit card market share, the sources told Reuters.

Capital One announced its plans to acquire Discover Financial last month in a proposed deal that would birth a global payments platform with 70 million merchant acceptance points in more than 200 countries and territories.

It would create the largest U.S. credit card issuer by balances and the sixth-largest bank by assets, and give Capital One control of the Discover credit card payment network, the fourth largest such network after Visa, Mastercard and American Express.

The sources told Reuters that the potential for the deal to create a rival to Visa and Mastercard — whose dominance in the card market has been criticized by lawmakers — is Capital One’s top argument for the merger.

The company said in the filing the Discover has given up market share in the past decade and Capital One can give it the scale and volume to compete. The filing also argues the merger would improve financial stability by ensuring Discover is taken over by a company that will invest in risk management.

As PYMNTS wrote last month, the deal could be good for consumers who live paycheck to paycheck.

Both “Capital One and Discover have long histories working with paycheck-to-paycheck consumers,” that report said, and research by PYMNTS Intelligence has shown that nearly 60% of all credit cards are held by consumers from this demographic.

“But — despite the easy access to money credit cards can provide — PYMNTS Intelligence uncovered a variety of data points that show most paycheck-to-paycheck consumers are fiscally responsible,” PYMNTS wrote.

To begin with, 4 in 10 paycheck-to-paycheck consumers with credit cards say they have no issues paying their bills. The research also found that paycheck-to-paycheck consumers are more likely to use debit cards than credit cards when making day-to-day purchases.

Meanwhile, while lawmakers might be unhappy with Visa and Mastercard’s position in the card market, members of Congress from both parties have criticized the Capital One/Discover deal, with Rep. Maxine Waters (D-Calif.) and Sen. Josh Hawley (R-Mo.) calling for it to be blocked.