We learned this week that Capital One is expected to purchase Discover Financial, making this one of the largest transactions in the financial services industry in recent memory.

Two of the biggest credit card businesses in the US would join forces in an all-stock deal valued at US$35.3 billion, putting the newly created company in a more advantageous position in relation to JPMorgan and Citigroup, the leaders in credit lending.

Because of Discover's established payments network, it is also perceived as a challenge to credit giants Visa and Mastercard.
 

Capital One's founder, chairman, and CEO is Richard Fairbank.
Richard Fairbank, the founder, chairman, and CEO of Capital One, stated, "We set out to build a payments and banking company powered by modern technology" during the announcement of the potential acquisition.

"Our acquisition of Discover represents a unique opportunity to unite two highly successful businesses with complementary franchises and capabilities, and to create a payments network that can rival the biggest payment companies and networks."

What makes Capital One want to acquire Discover?
The main motivation behind Capital One's acquisition of Discover Financial is to hedge against the growing competition from fintech companies and other financial institutions who are investing in more advanced technology.

In order to realize its own ambition to create a worldwide payments organization, Capital One intends to invest and scale Discover to the same level as its rivals.

It is envisaged that the combined company would be better able to provide experiences and goods to customers, small companies, and merchants across the credit card market.

Behind the deal, who is it?
Since Capital One's 1994 IPO, Fairbank has served as CEO, helping to transform the company into the credit card industry leader it is today.

In addition, by implementing cloud computing far earlier than most, he has contributed to the company's image as a leader in data and technology.

Given the uncertain future of global payments, the acquisition of Discover is a daring gamble.

Over the past thirty years, Capital One has grown into a finserv giant. Image: Capital One
As technology continues to change the payments and banking industry, he says, "through this combination, we're creating a company that is exceptionally well-positioned to create significant value for consumers, small businesses, merchants, and shareholders."

Is the agreement met with considerable resistance?
Fairbank is scheduled to submit formal applications to the US Federal Reserve and Office of the Comptroller of the Currency over the following several months. Capital One has stated that it expects the merger to be completed by early 2025.

But there's a lot of uncertainty about whether the merger will have an easy time getting approved by regulators, especially in light of recent problems with large transactions like Microsoft's acquisition.

She declared: "The combination of Discover and Capital One jeopardizes our economic stability, lessens competition, and raises fees and credit costs for American families." Regulators need to stop it right away.

What effect does the transaction have on credit scores?
According to Michal Selbka, Associate Director at S&P Global Ratings, a greater focus on credit cards and significant execution risk are roughly balanced against the advantages that Capital One will receive from its acquisition of Discover in terms of market share and profit synergies.

Consequently, the agency has confirmed the issue ratings it currently has on its outstanding senior unsecured, subordinated, and preferred debt instruments, as well as its long-term 'BBB' issuer credit ratings on Capital One and 'BBB+/A-2' issuer credit ratings on its bank subsidiary.

He continues, saying, "Our stable outlook reflects our expectation that, despite potential execution problems, Capital One will successfully complete its acquisition of Discover and that it can reduce its increased exposure to credit cards through conservative