Soon a new and larger credit card company in the United States may emerge.
O Capital One (COF) received approval from the Federal Reserve Board of Governors and the Coin Controller Office (OCC) to acquire and merge with Discover Financial Services (DFS)announced the agencies this Friday (18).
As a condition for approval, Capital One must provide OCC a plan “to address the underlying root causes of any pending execution actions against Discover Bank and plans for damage”.
The agreement involving only shares, announced for the first time for over a year, would give capital One a great advantage over competing credit cards such as JPMorgan Chase (JPM), Bank of America (BAC) and Citigroup (C), which do not process their own transactions.
This would also give the capital One a new source of revenue from the rates charged by the traders.
For current Discover customers, change can increase traders acceptance rates. But there is also a risk that they will face higher interest rates on the credit card.
Compared to other major credit card stations, the capital One historically serves customers with credit scores in the 600 range, considered subprime.
Because these borrowers are considered at higher risk, they tend to pay higher interest rates compared to individuals with higher scores.
By signing the agreement, the Fed announced that he signed a consent with Discover and charged a $ 100 million fine “for charging more at certain exchange rates from 2007 to 2023”.
Under the Biden government, the chances of the agreement receiving approval from the Justice Department were much lower, given the government’s general antitrust stance.
But the Trump government has been widely seen as much more favorable to mergers. Immediately after President Donald Trump’s victory in November last year, the shares of the capital One and Discover rose, as well as the shares of other companies trying to merge – or who had already completely canceled business.
