A mega-merger between lenders Capital One (COF) and Discover (DFS) has big implications for what kinds of credit cards are available and what interest you’ll pay to use one.

If Capital One’s $35.3 billion purchase of Discover goes through, the deal would create the nation’s largest credit card lender by balance owed, affecting what credit cards are offered, on what terms, and where you can use them. It also could shake up the overall market for credit cards at a time when plastic is an increasingly important part of U.S. household finances. 

The deal comes as the use of credit cards—and credit card debt—is growing fast. U.S. consumers have kept up their levels of spending even as household budgets are pressured by higher prices, with incomes failing to keep up in some cases.

Overall credit card debt has been breaking records, hitting $1.31 trillion at the end of 2023. The average consumer owed $6,088 on their credit card in the third quarter of 2023, also a record according to TransUnion.

What Does This Mean For Existing Discover Customers?

Should the merger be approved by regulators, it could affect customers who currently hold Discover cards, of which there were 74.5 million in circulation at the end of 2022, according to the Nilson Report. 

The Discover brand will continue to be used, Capital One CEO Richard Fairbank said Tuesday on a call with investors. The company did not say which specific cards would continue to be offered, or how the terms would change, though Fairbank said Discover’s success with cash-back cards was a major reason for the acquisition.

How Does The Merger Impact Interest Rates?

About half of all credit card borrowers don’t pay off their balances in full at the end of every month, according to data from the Consumer Financial Protection Bureau. The interest charged for that debt has been pushed to its highest in decades—more than 20% on average—because of the Federal Reserve holding its influential rate at a 23-year high. 

The creation of bigger credit card companies could push interest rates even higher, consumer advocates said, pointing to recent research by the government’s consumer watchdog agency.

Bigger banks tend to charge higher interest rates, according to a CFPB study published last week. Large institutions charged customers with good credit scores an average of 28.20% interest, versus 18.15% for smaller banks, the CFPB found. 

“You should be concerned that will be the same going forward, or worse,” said Adam Rust, director of financial services for the Consumer Federation, an advocacy group.

Will Discover’s Payment Processing Be Impacted?

The deal could also affect which credit cards are accepted where. In addition to issuing cards, Discover operates its own payment processing network, competing with Visa, Mastercard, and American Express.  As it stands, Discover is accepted at most U.S. merchants, but at fewer places than Visa and Mastercard, especially overseas.  Capital One wants to work to expand the network, making it available in more locations and using it to process some of the Capital One card transactions that are currently handled by Visa and Mastercard, Fairbank said on the investor call. 

Will It Reduce Competition?

Other groups called on federal banking regulators to block the acquisition, arguing that it would reduce competition. 

“It is very difficult to imagine how federal regulators could allow Capital One to buy Discover given the requirement that mergers benefit the public as well as insiders,” said Jesse Van Tol, CEO of the National Community Reinvestment Coalition advocacy group, in a statement. “I oppose this deal and will recommend NCRC members challenge it as well.”

The proposed deal also sparked political opposition. Elizabeth Warren, a Democratic senator from Massachusetts and longtime critic of the financial services industry, called for the acquisition to be blocked.

“The merger of Capital One and Discover threatens our financial stability, reduces competition, and would increase fees and credit costs for American families. This Wall Street deal is dangerous and will harm working people. Regulators must block it immediately,” she posted on social media platform X Tuesday.

However, the combined bank would still face fierce competition from other large banks and would control less than 20% of the market, making it unlikely that regulators would block it on antitrust grounds, analysts at Bank of America said Tuesday in a research note to clients. 

“Given the highly competitive credit card industry with many large banks having a strong presence, we think antitrust concerns appear largely manageable,” they wrote.

What Should Consumers Do?

Whatever the outcome of the merger, Rust said it’s a good time to shop around for a credit card and make sure you have one that suits your financial needs. 

For example, someone who carries a balance would benefit from low interest and fees, whereas you would want to prioritize cash back and rewards if you pay your balance off every month. 

“At this point in time, it's hard to know exactly what to expect, and these kinds of mergers could easily take a year. There's a lot to evaluate,” Rust said. “This is a clarion call for consumers to ask themselves, ‘Do I have the best credit card for my needs?’ And if not, is it time to go look for a different one.”