Capital One wrestles with how to best use Discover's network

Capital One is preparing for a massive shift in the credit landscape following its planned acquisition of Discover. CEO Richard Fairbank is signaling a major move to migrate Capital One’s existing credit card volume onto Discover’s proprietary payment network. For retailers and operators, this means the 'Big Two' (Visa and Mastercard) are facing a serious challenger. Capital One aims to use this network to lower its own costs and gain more control over the payment process. While the deal is still under regulatory review, the implications for merchants are significant. A larger, more robust Discover network could lead to more competitive interchange fees and different incentive structures for stores that offer Capital One-backed financing. Fairbank describes the network as a 'holy grail' because it allows the company to act as both the lender and the payment processor. This vertical integration usually gives a lender more flexibility in how they approve customers and manage rewards. Retailers should keep a close eye on this transition. If you currently accept Discover or offer Capital One financing, you may eventually see changes in transaction costs or new promotional opportunities. The company is betting that owning the 'pipes' of the payment system will allow them to out-compete other major banks who have to pay fees to Visa and Mastercard.

Source: American Banker — Top News

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