Just hours after Capital One Financial Corp. said it would buy Discover Financial Services, politicians such as Senator Elizabeth Warren insisted the deal must be blocked to protect consumers from being preyed on by what would become the US’s biggest credit card issuer. Congressional Democrats ratcheted up the opposition in a letter to regulators this week.
Such a consequential merger surely deserves scrutiny. But on balance, it’s likely to inject much-needed competition into the card market. Dismissing it out of hand serves only politics — not consumers or companies.
Capital One has grown into the ninth-biggest US bank by assets through the relentless promotion of its credit cards, which provide two-thirds of its revenue. Like most US card issuers, its transactions are processed over one of just four networks, owned by Visa Inc., Mastercard Inc., American Express Co. or Discover.
Visa and Mastercard, with more than 80% of the market, have been in the sights of antitrust officials and legislators for years over concerns that they exploit their market dominance to levy excessive fees on merchants. Discover, with less than 5% of US purchase volume, was at risk of getting even weaker. The company disclosed last year that it had been overcharging some businesses on its card networks since as far back as 2007, leading to a profit slump, management change and added scrutiny.
Capital One says it aims to build Discover’s “incredibly rare and valuable” network into a tougher competitor, using it for more of its own transactions and investing in marketing and technology. The effort could persuade more businesses to accept payments over the Discover network, which could attract new issuers.
