The Federal Reserve Board has officially approved the merger between Capital One and Discover Financial Services, creating what will become the nation’s sixth-largest bank. This $35.3 billion deal combines two major credit card issuers and marks one of the largest financial mergers since the 2008 financial crisis.
Capital One CEO Richard Fairbank called the approval “a significant milestone” during yesterday’s investor call. “This combination creates a payments network that can truly compete with the industry giants,” Fairbank said. The deal still needs final approval from the Justice Department, which is expected within 60 days.
The merger faced tough scrutiny from regulators concerned about market concentration. Fed Chair Jerome Powell acknowledged these concerns but ultimately supported the approval. “After extensive review, we determined this merger would not substantially lessen competition in any relevant market,” Powell stated in the Fed’s 45-page decision document.
Consumer advocacy groups have raised alarms about potential downsides. “When banks get bigger, consumers often end up with fewer choices and higher fees,” said Lauren Saunders, associate director at the National Consumer Law Center. Analysis from the Consumer Financial Protection Bureau shows that previous bank mergers have resulted in an average 3.5% increase in credit card interest rates within two years.
The combined entity will control approximately 13% of the U.S. credit card market. This places it behind industry leaders JPMorgan Chase and Citigroup but creates a more formidable competitor. The merger also gives Capital One control of Discover’s payment network, the fourth-largest in the country behind Visa, Mastercard, and American Express.
Wall Street reacted positively to the news. Capital One shares jumped 7.2% while Discover stock rose 5.8% in yesterday’s trading. Bank analyst Mike Mayo from Wells Fargo Securities upgraded Capital One to “overweight” following the announcement. “This deal transforms Capital One from a credit card company into a true financial ecosystem,” Mayo wrote in his client note.
The companies have promised cost savings of $2.7 billion through combined operations and technology integration. However, these savings will come at a price. Internal documents revealed during the approval process indicate approximately 3,500 positions will be eliminated, primarily in overlapping administrative and operations roles.
For consumers, the immediate impact remains unclear. Capital One has committed to honoring existing Discover card rewards programs for at least three years. The company also pledged to maintain Discover’s no-foreign-transaction-fee policy across its entire credit card portfolio, potentially saving customers hundreds of millions annually.
Small business advocates have expressed mixed reactions. “The merger could actually increase lending competition for small businesses,” said Karen Mills, former head of the Small Business Administration. She noted that the combined entity would have greater resources to challenge dominant small business lenders like American Express and Chase.
Technology integration represents perhaps the biggest challenge. Capital One plans to migrate Discover’s 57 million customers to its own digital banking platform over 18 months. Previous large-scale banking technology migrations have faced significant difficulties. The 2018 TSB-Sabadell integration in the UK resulted in weeks of customer lockouts and transaction failures.
Capital One has committed $1.2 billion toward technology integration costs. Chief Technology Officer Mike Eason emphasized their readiness during an analyst call. “We’ve successfully completed seven major acquisitions in the past decade, and our integration playbook is well-tested,” Eason said.
Banking industry consultant Daniela Johnson from McKinsey believes the merger reflects broader industry trends. “We’re seeing financial institutions focus on scale and specialized capabilities rather than geographic expansion,” Johnson explained. “This deal gives Capital One both scale in credit cards and a valuable payments network.”
The approval includes conditions aimed at protecting consumers. Capital One must maintain Discover’s existing zero-liability fraud protection policies and report quarterly on customer complaint resolution times for the next three years. The Fed also required a $1.7
