On April 18, 2025, U.S. regulators approved Capital One’s $35.3 billion acquisition of Discover Financial Services, paving the way for a transformative shift in the U.S. payments landscape. This merger will establish Capital One as the largest credit card issuer in the U.S. by loan volume and grant it control over Discover’s proprietary payment network—a move that could significantly disrupt the traditional card network hierarchy.
Historically, most banks have issued cards through dominant networks like Visa and Mastercard, which work cooperatively as associations of banks across borders. By acquiring Discover, Capital One gains end-to-end control over both card issuance and payment processing, similar to American Express’s integrated model, but with more scale and more bank products to cross sell. This strategic move allows Capital One to reduce reliance on external networks, potentially lowering transaction costs and enhancing customer experiences.
Capital One has indicated plans to transition its debit cards and select credit cards from Visa and Mastercard to the Discover network. This shift could challenge the longstanding duopoly of Visa and Mastercard for card issuers, introducing more competition and innovation into the entire payment sector.
For decades strategy consultants in the payments space could earn months of fees by proposing an acquisition of Discover for their clients. It even became something of an inside joke. However, this time not only is it real and happening (happened!), this merger has the potential to upend the balance of the payments ecosystem.
What if the new capabilities of CapOneDiscover (note that no fish references have or will be made in this post) enable entirely new forms of payments? What if it unlocks new business models? What if some of the long standing issues in the networks related to fraud, international bad actors, and mixing high risk with low risk businesses could be tackled in a new way? What if we reimagined what a payments network exists to do?
These are exciting times.
For fintechs, banks, and merchants, this development underscores the importance of flexibility and interoperability in payment platforms. As the industry evolves, the ability to adapt to new payments providers, networks and methods becomes crucial.
At ModoPayments, we have built a platform that enables seamless connectivity across various payment providers. Our solutions are designed to help partners navigate the complexities of an ever-changing payments landscape, ensuring they can offer their customers the best possible experiences.
The Capital One-Discover merger is set to close on May 18, 2025. As this new entity emerges, we anticipate a ripple effect throughout the payments industry, prompting other institutions to reevaluate their strategies. Staying agile and embracing innovation will be key to thriving in this new era.
For more insights on how to prepare for these changes, feel free to reach out to our team at ModoPayments.
We'll be posting more on this for months to come!