The US Department of Justice (DOJ) has reportedly declined to oppose the proposed $35 billion merger between Capital One and Discover Financial Services, removing what was seen as the most significant regulatory obstacle to a deal that could reshape the American credit card landscape.
Capital One – Discover merger clears key DOJ
In a confidential communication to federal banking regulators — namely, the Federal Reserve and the Office of the Comptroller of the Currency (OCC) — the DOJ concluded it lacked sufficient grounds to block the all-stock transaction.
While both agencies must still formally approve the merger, the absence of antitrust objections from the DOJ significantly increases the likelihood of the deal proceeding.
Mega Merger
Should the merger close, Capital One would become the US’ largest credit card issuer by outstanding balances, overtaking JP Morgan Chase.
The combined entity would serve an estimated 400 million cardholders, uniting Capital One’s broad customer base with Discover’s proprietary card network and issuing capabilities.
From a competitive standpoint, the consolidation is poised to disrupt the longstanding duopoly of Visa and Mastercard.
Discover operates its own payment network, unlike Capital One, which traditionally relies on the infrastructure of the two major incumbents.
Analysts at Northwestern University’s Kellogg School of Management suggest the merger could catalyse a broader realignment in the sector, particularly if Capital One opts to migrate existing cardholders to Discover’s network over time.
Implications for Consumers
There are potential implications for consumer segmentation as well.
Discover’s product range includes cash-back debit cards, often appealing to lower-income demographics.
Capital One could leverage these offerings to expand its footprint in underserved segments, particularly among consumers with non-prime credit scores.
A study from the University of California, Berkeley has flagged concerns over the enlarged firm’s dominance in the non-prime credit card market, warning of the potential for increased interchange fees and higher borrowing costs.
The merger has drawn criticism from progressive lawmakers, including Senator Elizabeth Warren, who argue the deal risks reducing competition and harming consumers through increased fees and less favourable credit terms.
Such concerns were reportedly echoed by some DOJ officials during internal deliberations.
Nevertheless, the department’s antitrust chief Gail Slater is said to have concluded that the evidentiary threshold for legal action could not be met.
This decision stands in contrast to the DOJ’s more aggressive enforcement stance under President Biden, which saw an attempt to block Visa’s proposed $5.3 billion acquisition of fintech firm Plaid in 2020.
With a new administration now in office, the DOJ’s restraint may signal a recalibration of antitrust policy, particularly in financial services.
Despite the DOJ’s position, the merger is not yet final.
The Federal Reserve and OCC must still conduct their own assessments, and retain the authority to reject or impose conditions on the deal.
Nonetheless, market watchers view the DOJ’s decision as a clear signal that regulatory winds may be shifting, with major implications for payment networks, banks, and consumers alike.
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