With its recent announcement that it intends to purchase Discover for $35.3 billion, Capital One is poised to change the credit card industry. This week, Guy Williams of Gulf Bank and Trust joined WWL’s Newell Normand to discuss what’s behind the potential merger.
“What they’ve realized is they’re working hard to make money for visa and Mastercard because they’re issuing visa and Mastercard credit cards,” said Williams. “And they looked around and realized: “Well, what if we issue our own cards?’”
After news broke about Capital One’s intent to purchase Discover, a group of Democrat lawmakers issued a letter urging regulators to block the deal.
“To protect consumers and financial stability, we urge you to block this merger and strengthen your proposed policy statement to prevent harmful deals in the future,” wrote the lawmakers, per a press release from U.S. Sen. Elizabeth Warren (D-Mass.). They argued that the merger would limit consumer choice.
Williams explained that Discover is the fourth largest credit card issuing network behind Visa, Mastercard and American Express.
“And so, from a business perspective, it makes a whole lot of sense because you cut out the middleman, you’re issuing your own card, you create your own network where you control the network pricing,” he said. “I think for Capital One, it really is an incredible move.”
According to the Motley Fool, customers could also see benefits from the merger in the form of unique new products, rewards, or merchant loyalty programs. It also said the purchase of Discover could help Capital One save money on fees, which could create value for its customers.
“It’s a good strategy,” said Williams. Listen here to his full talk with Normand.