What a possible Capital One and Discover merger means for consumers

Capital One's decision to acquire Discover could establish a new megafirm that shakes up the credit card industry.

The move may hold long-term implications for credit card holders, regardless of whether they bank with Capital One or shop with Discover, experts told ABC News.

If approved by shareholders and regulators, the merger would leave Capital One in a stronger market position, potentially allowing the company to offer more attractive bonuses and perks, some experts said. The potential challenge to industry juggernauts Visa and Mastercard, meanwhile, could elicit innovations and fresh offerings for consumers industrywide, they said.

The deal, however, could also have an adverse effect for consumers, leaving the industry with fewer competitors overall and easing pressure on companies to attract customers with favorable terms, some experts and consumer advocates said.

"It could be a little from column A and a little from column B," Sara Rather, a credit card expert at NerdWallet, told ABC News, noting that the move may improve conditions for consumers in some ways and damage them in others.

"On the one hand, it means less competition and on the other hand it'll potentially propel Capital One into a bigger entity that has even more innovation and product offerings. And the other companies are paying close attention," Rather added.

Capital One did not immediately respond to ABC News' request for comment. Neither did Discover.

The deal arrives at a precarious moment for credit card holders. Credit card debt stands at a new record high $1.13 trillion, according to data released earlier this month by the Federal Reserve Bank of New York.

Credit card balances increased by $50 billion in the fourth quarter of 2023 alone, a 4.6% jump from the previous quarter, the report said.

Experts who spoke to ABC News said the merger would not carry short-term impacts for customers at Capital One or Discover, or those at rival firms, since the two companies at issue may take over a year to finalize the agreement.

"This isn't going to have any effect on consumers in the short term," Matt Schulz, chief credit analyst at LendingTree, told ABC News. "These sorts of mergers tend to move glacially."

"There's nothing that Capital One or Discover customers need to really do or worry about today," Schulz added.

Customers will likely receive communication from Capital One and Discover if the deal results in changes to their services, said Rather.

If the deal closes, it may ultimately influence consumer terms across the credit card industry, though it remains unclear whether that effect would be positive or negative, experts said.

As of Tuesday, the combined value of the two companies stands at approximately $83 billion. By comparison, the value of Mastercard and Visa are about $422 billion and $564 billion, respectively.

The potential arrival of a company made up of Capital One and Discover could heighten the competition faced by Mastercard and Visa, pushing them to improve the credit card terms available to customers, Mark Hamrick, senior economic analyst at Bankrate, told ABC News.

"Certainly when you get more vibrant competition the existing enterprises in that space would obviously be concerned about facing greater competition," Hamrick said.

But further concentration at the top of the industry may serve to loosen competition and harm consumers. "It's a hard question to answer," he added.

Some consumer advocates echoed the concern about possible damage to consumers.

Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition, a consumer advocacy group, said in a statement that the move risks undercutting competition and harming offerings.

The merger "poses massive antitrust concerns, given the vertical integration of Capital One's credit card lending with Discover's credit card network," Van Tol said.

Despite the success of a few giant companies, the credit card industry remains highly competitive, said Schulz. That fight for customers will limit any adverse impact after the merger, he added.

"The credit card marketplace is still so competitive that I think any worries about this having a negative effect on things like rewards is probably a little overstated," Schulz said.

Regardless of where experts stand, they agreed that the deal may not gain approval from regulators.

"I wouldn't count my credit card chickens before they hatch," Hamrick said.

ABC News' Elizabeth Schulze contributed reporting.