Why the Capital One/Discover Deal Is About Much More Than Payments

The deal is as much a banking milestone as much as a major payments development, with reverberations that could impact everything from deposit generation to small business finance. Up next: Could Capital One make a grab for the Apple Card portfolio?

By Steve Cocheo, Senior Executive Editor at The Financial Brand

Published on May 1st, 2025 in Banking Trends

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When Capital One and Discover announced their deal in February 2024, their leaders projected optimism, but some industry observers wondered if it would actually make it through the regulatory gauntlet of a Biden administration that plainly didn’t like major banking M&A.

Within the first 100 days of the Trump regime, the final federal banking regulatory approvals came through, ending that phase of the speculation and sparking a new round of questions: What’s next, now that the deal will be consummated mid-May?

Analysts attacked this theme during the late April first quarter earnings briefings. Noting the long time that the deal was under regulatory review, Capital One’s Richard Fairbank, chairman and CEO, allowed that synergies between the two major card issuers would begin about two years from consummation, six months later than initially projected. He added that some aspects of the synergy will hinge on decisions at the Federal Reserve regarding debit interchange rules.

Then Fairbank, relying on a catchphrase he often uses when giving the big picture in analyst meetings, remarked, "pulling way up, the acquisition of Discover is a singular opportunity. The combination of Capital One and Discover will create a leading consumer banking and payments platform with unique capabilities, modern technology, powerful brands, and a customer franchise of over 100 million customers that spans the marketplace."

Fairbank, who rarely consents to interviews, provided significant glimpses of what he has in mind during the briefing. The Financial Brand also spoke to four veteran payments experts for their thoughts on what could come of the deal. They include Richard Crone of Crone Consulting, LLC; Tony DeSanctis, senior director at Cornerstone Advisors; Erin McCune, principal at Forte Fintech; and Christopher Uriarte, partner at Glenbrook Partners, LLC. All spoke of potential strategies Capital One could pursue, as well as how merchants and consumers could be affected by the integration as the deal progresses.

"Capital One has more tools in their toolbox than any other issuer," says Uriarte. "They’ll have a debit network that they own, which is a very large scale network. They are already an issuer of Visa and an issuer of Mastercard. That’s an incredible array of options." They will straddle the worlds of closed-loop systems — where one company is issuer, acquirer and network operator — and open-loop systems, that of Mastercard and Visa, where Capital One is an issuer only.

Smaller banks and credit unions need to understand the competitive impact on them, according to DeSanctis. "Capital One will be able to launch a debit card solution that will be competitive — perhaps even more competitive — than what most community banking institutions can launch because they will be exempt from the Durbin Amendment."

The experts’ predictions ranged from projections based on current publicized plans to completely out-of-the-box thinking. One suggestion can even be described as "mind-blowing."

A Deal About Payments, But Very Much Beyond Payments

Fairbank noted that Capital One has been upgrading its technology for over a dozen years and its systems will combine, in time, with Discover’s dedicated credit and debit networks, spread over a much larger customer base.

Fairbank made it clear that the deal will be not just a payments story but also a banking story — one example being the way it will augment the acquirer’s long-term effort to build a national full-service digital bank with a thin physical presence.

He also made it clear that he’s playing a long game, although there may be early payoffs.

Case in point: Discover’s debit network. This is one of the jewels of the deal, in part because it makes its owner exempt from Durbin amendment restrictions on debit interchange pricing. Fairbank means to treat this jewel carefully. One aspect of this is that the network will retain the Discover name — "absolutely the right brand for the network." Indeed, Fairbank plans to continue using the Discover brand on the credit card side as well.

Fairbank told analysts that "we don’t plan to come roaring out of this acquisition on national TV really leaning into the network brand." Instead, the concentration will be on moving the Capital One debit business to the Discover debit network, as well as some of its credit card business. He pointed out that a large portion of Capital One’s existing customer base consists of people who travel internationally.

Then building international acceptance will be a priority, ahead of promoting the brand name in its new setting. He wants to wait until "it’s ready to really take this story on TV."

Later in the briefing, Autonomous Research analyst Robert Wildhack noted that Fairbank had hit the theme of international acceptance multiple times in the discussion. "It seems like that’s a chicken and egg problem," he said, asking for an explanation of strategies and tactics.

Fairbank acknowledged the phrase. "It is a chicken and egg problem," he said, speaking of the legwork needed to call on merchants to build acceptance both directly and with partners. "When you show up, they want to know how much volume you’re bringing. And as we get people and as we sign up customers, they want to know how much acceptance we have."

"So," Fairbank continued, "it’s a classic chicken and egg thing — but it’s not starting at zero. It’s starting at a pretty striking level of acceptance."

Fairbank also pointed out that in the U.S. Discover is the debit network provider for several thousand other banks — relationships that he intends to maintain.

"I don’t want to diminish that particular business model," Fairbank said. "It’s a great thing. It came from their acquisition in 2005 of the Pulse Network. It’s a very nice business model, and we would love to grow that."

Handling a Major Migration of Multiple Portfolios

Glenbrook Partners’ Chris Uriarte, who works extensively with merchants on payment matters, says the coming migration of certain legacy Capital One card programs to Discover rails will be among the biggest, if not the biggest, in memory. Uriarte suspects that the stable of very popular Capital One travel rewards cards will remain in the Mastercard and Visa networks because of brand recognition and international acceptance. The cards that appeal most to people who don’t travel, the domestic spenders, he believes will migrate to the Discover brand.

Such issues will have a major impact on ecommerce merchants that offer subscriptions and recurring purchases where they maintain cards on file, if and when the accounts move to Discover.

"All those card numbers are going to change," says Uriarte, as well as tokens issued on cards that move to Discover from Capital One’s Visa or Mastercard-based programs. Consumers using digital wallets for their cards will also have to make adjustments for accounts that switch over, he points out.

On both fronts, Uriarte adds, there will be a time of friction as transitions proceed. Capital One risks some attrition, which he says they may believe will affect relationships with infrequent users.

"It really just comes down to how well they’re going to manage it," says Uriarte.

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Adding Rocket Fuel to Capital One’s Digital Banking Plans

Cornerstone’s DeSanctis says thinking of the deal as a mainly "payments matter" reflects a mistake he often scolds clients about.

"Payments is at the center of your deposit relationship. It is the most common connection point you have with your deposit customer, who is doing 25 to 35 debit transactions a month with you," says DeSanctis. "That is the relationship. If you think this is just about payments market share, then you’re missing a big piece."

More than a decade ago, Capital One set out to build a digital-first full-service national bank, with a thin physical system with branches in some areas and non-branch café offices in major metropolitan markets. Fairbank sees this as building a lean national bank. "It’s a streamlined economics, thin margin, aggressively priced business model," said Fairbank.

"We are really pleased with the momentum we have there and we’re excited by the combination with Discover that will give us more scale and more momentum," said Fairbank. He predicts that the bank will be able to grow via this strategy more aggressively once the deal is integrated.

The potential competitive potential of this move can’t be ignored, according to DeSanctis.

"By no longer having to adhere to Durbin requirements, they will have the opportunity to dictate interchange rates," says DeSanctis. "Merchants can choose not to accept the cards, but for the most part the rates aren’t going to be so prohibitive that folks won’t accept them."

Being able to squeeze more interchange out of the process will enable Capital One to offer attractive rewards to debit card holders, he continues. This will draw certain customer segments to Capital One for banking. DeSanctis believes this will remain an advantage even if the Fed’s proposed but challenged reduction of the top debit interchange rate goes through. (The Fed proposal was made in late 2023.)

"So this has the potential to be incredibly disruptive in terms of growing their deposit base and their core banking activities," says DeSanctis. "I think that’s a bigger opportunity for them and a bigger risk for community banks and credit unions than their credit card business." He explains that while all of those institutions need deposits, most don’t have extensive credit card programs compared to Capital One.

DeSanctis says the ability to pull in higher interchange fees would give Capital One an additional adjustment knob in competing for deposits. It could tweak rewards to find the optimal balance points with deposit account interest.

"There are a lot of ways they can approach it. Knowing Capital One, they’re going to test and learn and pilot to see what works best." He adds that steps like these will likely come after integration is well underway — but smaller institutions should be thinking of the coming challenge now.

Bridging Capital One Business Banking and Capital One/Discover Payments

Forte Fintech’s Erin McCune points out yet another banking side to the deal: Greater opportunities to provide financing to small businesses that are hungry for working capital.

McCune says there are numerous payment service providers and other firms that combine payment processing with lending.

"If I’m processing your payments, I can use that data to extend credit to you, and I can throttle the payback with your sales, which is really comfortable for you," says McCune. "It’s also quite expensive."

McCune says Capital One could parlay its increased presence in payments, and its new direct relationship with merchants, into an opportunity to offer such financing. This could be done at more attractive pricing and terms than the nonbank providers currently offer, she suggests.

Beyond that, McCune thinks Capital One’s technical prowess can be brought to bear on the greater number of small businesses, including embedded payments and antifraud measures.

"Transactions should be embedded in software for merchants and small businesses and even big businesses," says McCune.

"Capital One could do some very bold things, overall," says McCune. "I’d be very disappointed if they didn’t."

Another potential avenue is facilitation of agentic AI purchasing, which McCune sees as the wave of the future. Tech-savvy Capital One has already launched "Chat Concierge," a multi-agentic AI developed internally that helps auto dealers serve car shoppers.

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Is the Deal Just Stage One of a Bigger Plan?

Payments consultant Richard Crone says Discover was shopped in the industry for years, but no one landed the fish. "So now Capital One has won the prize," says Crone. "But just buying Discover with its legacy traditional credit products isn’t going to unlock the market-making potential that all the other players considered."

Specifically, Crone thinks that Capital One is — or should be — looking at stepping into the negotiations that have been going on for some time for an institution to replace Goldman Sachs as the bank behind the Apple Card. The Apple Card is currently a Mastercard instrument, though Visa and American Express have already tried to pull it into their systems. The other network is Discover.

But Crone’s argument goes beyond Capital One doing this merely for market share. He points to a Wall Street Journal analysis of the Apple Card turnover from early April, which said, in part, "The network that locks in this deal is expecting to stay close to Apple’s future payments efforts."

Crone sees multiple advantages to Capital One/Discover paying way up to secure this arrangement.

First, it would snap up the tokenization business for Apple Pay, a ubiquitous digital wallet, he believes. It would be a coup at a time when both Mastercard and Visa have been pursuing credentials programs of their own that enable consumers to handle multiple payment types through one relationship.

"Apple Pay processes approximately 1.2 trillion tokenized transactions annually across 2.25 billion credentials held by 750 million users, with around three registered accounts per user," according to Crone. The annual tokenization revenue ranks in multiple billions a year.

Crone is adamant about this concept.

"For Capital One not to aggressively pursue the Apple Card portfolio would be like buying Netflix and never investing in a hit show," Crone insists. "They’ve acquired the platform — Discover — but without Apple Card as the breakout product and Apple Pay as the distribution channel, the network remains underutilized and the monetization opportunity goes untapped."

He says consumers will still use Discover cards, but without a twist like a deal with Apple there won’t be an onrush of new users.

Crone says the future of payment processing is "digital wallets, proven humanness, and managing identity with fraud-proof tokenization."

Tying up with another player, such as Google, could work, but not as far as a deal with Apple would put things, according to Crone.

He says a critical point is that the battle won’t be around card receivables, but getting Discover inside Apple Pay as a credential layer.

There’s more detail to Crone’s argument, but that’s the broad outline. If he’s right, Capital One would have to outspend Visa’s offer of $100 million for Apple to move to its network.

How much more? Crone believes Apple is holding out for a fatter premium.

"It would be the richest deal in the space," says Crone.