Written by Jonathan Rubin, Partner and Co-Founder of MoginRubin LLP
Capital One's proposed $35.3 billion acquisition of Discover Financial pits any potential benefits against the potential for harm to competition in the form of increased market power through consolidation and reduced consumer choice. Based on their respective statements, the merging parties and the government may be eyeing the merger through opposite ends of the telescope.
The deal would create the largest U.S. credit card issuer, surpassing JPMorgan Chase and exceeding $250 billion in outstanding card balances. Capital One would gain access to Discover's payment network, reducing its reliance on Visa and Mastercard, which dominate the payment card network space. Considering Visa and Mastercard's half-century of dominance over payment systems, some commentators believe the deal could boost competition in the payment space, ultimately leading to lower fees for merchants and consumers.
On the other hand, Senator Elizabeth Warren (D-MA) and other lawmakers have expressed antitrust concerns, arguing the deal would harm – not help – competition. Predicting harm to consumers, Warren and her colleagues point to evidence of higher interest rates and fees charged by large bank issuers compared to smaller network issuers like Discover. The legislators also cite past consumer protection violations by both Capital One and Discover.
Taking to YouTube to announce the proposed deal, Capital One CEO Richard Fairbank – seemingly unmoved by concerns expressed by members of Congress – says the merger is "well-positioned for approval," arguing that it will create a "stronger competitor" to Visa and Mastercard. He highlights the potential benefits to consumers, small businesses, and merchants who will be offered a wider range of products, improved customer experiences, and, potentially, lower fees.
The Federal Reserve and the Office of the Comptroller of the Currency are charged with evaluating the deal's potential impact on competition before granting approval. Warren and her colleagues have asked these regulators to strengthen their standards of review to ensure that future mergers do not harm consumers and the broader economy. They specifically addressed OCC Acting Comptroller Michael Hsu, who has remarked on the need to scrutinize merger applications to prevent large banks from becoming unmanageable.
-------
See a previous post by Jonathan Rubin on the MoginRubin Blog relating to the credit card and payment system industry: Second Circuit Affirms $5.6B Settlement of Antitrust Claims in Merchants’ Credit Card Fee Case
Read the press release announcing the D.C. district court's certification of a class of U.S. independent ATM operators in a case brought by MoginRubin LLP on their behalf against Visa and Mastercard.
Photo by Avery Evans on Unsplash.
