Will Cap One’s Deal for Discover Create ‘True’ Network Competition? Depends on Whom You Ask

Capital One Corp.’s proposed acquisition of Discover Financial Services may give Cap One an alternative network over which to route credit card transactions, but the deal will not create the “badly needed” network competition that passage of the Credit Card Competition Act would, the Merchants Payments Coalition argues.

Without passage of the CCCA, Capital One’s ownership of Discover’s credit card network and the Pulse debit network does not create true network choice because Visa Inc. and Mastercard Inc. require financial institutions issuing cards on their networks to route transactions over those networks, says Doug Kantor, MPC’s Executive Committee member and National Association of Convenience Stores General Counsel. That rule would apply to Visa and Mastercard branded cards issued by Capital One.

The CCCA would require financial institutions with $100 billion or more in assets to enable at least one network other than Visa or Mastercard for credit card transaction processing. Discover, along with debit networks such as NYCE, Star, and Pulse, have been mentioned as possible alternative networks issuers can route transactions over should the CCCA become law.

As a result of Visa’s and Mastercard’s contractual agreements with card issuers over network routing, they could block any attempts by issuers from routing transactions over a lower-cost alternative network, unless a law were in place allowing them to do so, Kantor adds.

“Until card issuers can add an alternative network to the Visa/Mastercard duopoly, Discover remains boxed in, because Visa and Mastercard control more than 80% of the market,” Kantor. “So far, no Visa or Mastercard issuer has broken the precedent of routing transactions over another network. Capital One’s acquisition of Discover does not address this fundamental problem.”

Despite the MPC’s position on the matter, some opponents of the CCCA argue the deal will foster more network competition.

“Capital One’s acquisition of Discover, moving its entire debit portfolio and a portion of its credit portfolio to the Discover and Pulse networks, and investing in the brand in the U.S. and internationally, will strengthen [Discover] and consequently increase network competition in the U.S., and to a lesser extent abroad,” Eric Grover, principal at Intrepid Ventures, says by email.

In a recent post on the social-media network X, formerly Twitter, Richard Hunt, executive chairman of The Electronic Payments Coalition, said: “So delusional. @CapitalOne acquisition FURTHER illustrates the highly competitive credit card space. If @MerchantsPymnts, @SenatorDurbin
& @RogerMarshallMD want gov’t mandates, let’s put caps on the exorbitant food prices at @Walmart & @Target.” The EPC represents banks, credit unions, and payment card networks, and is lobbying against the CCCA.