What happens when two credit cards merge into one? It could make business news by generating higher interest rates – at least for some.
What’s in your wallet or purse? It’s possible you’ve got a credit card from Capital One or Discover in there somewhere. They’re not the biggest card issuers in the United States; according to The Nilson Report, Capital One ($272.6 billion in purchase volume) ranked No. 4 in the first half of 2023, and Discover ($105.8 billion) checked in at No. 6.
So why is it such a big deal that Capital One Financial is trying to buy Discover Financial for $35.3 billion? Because if the sale goes through, it will create the largest credit card lender in the U.S. when it comes to outstanding balances. And that raises the specter of higher interest rates, which you’ll need to factor in when you’re scouring the online sportsbooks for the tastiest business odds.
What Are Credit Cards?
Although pretty much every adult uses them, not everyone understands what credit cards are all about. These are payment cards used to purchase goods and/or withdraw cash; you’re charged a certain interest rate when you do, either at the point of your transaction or at the end of your monthly billing cycle.
Credit cards aren’t the same as charge cards like those issued by American Express, where you absolutely have to pay up when your next bill arrives. Instead, you have the option of letting your credit balance roll over to the next cycle. This is how people around the world get into debt – but especially in the States.
How Much Do Americans Owe On Their Credit Cards?
Massive heaps of money.
There were 1.09 billion active credit cards in the U.S. in 2020, with nearly three in four adults using at least one card; according to NerdWallet, after all that additional spending during the pandemic, Americans owed $1.25 trillion as of March 2024, or $21,083 per household. That’s up from $930 billion at the end of 2019.
The thing about these cards is the interest rate is much higher than what you’ll get for your investments. Reports from the Consumer Financial Protection Bureau show about half of all credit card users aren’t paying off their full balances at the end of the month; that leaves them paying 20% or more interest on their accumulated credit.
It’s usually way more than 20% – especially when you’re dealing with one of the larger credit card issuers. In July 2023, the top rate for Capital One was 31.74%, and the top rate for Discover was 27.74%. Now they’re about to create one giant company; Marketwatch reported in February that these two have a combined $257 billion in outstanding balances, even more than JPMorgan Chase ($211 billion), the largest bank in the U.S.
What Will Happen to Interest Rates?
Expect most of those credit card rates to go up should this merger go through. Not only would Capital One/Discover become the largest debt-holders among these companies, they’d also be reducing the amount of competition in the credit card marketplace, giving other companies the incentive to raise their interest rates.
That’s unless you’re talking about the two big fish in the pond: Visa and MasterCard. They might not hold the same amount of debt as Capital One/Discover, but these are both much larger companies in terms of value.
- Visa: $564 billion
- MasterCard: $422 billion
- Capital One/Discover: $83 billion
For Visa and MasterCard, this potential merger could have the opposite effect, prompting them to lower their credit card rates in the face of increased competition. But that’s assuming the merger goes through. Federal regulators are already poring over the details, and while Capital One expects this deal to go through by early 2025, there are some serious antitrust concerns; this could all get shut down just like JetBlue’s attempted buyout of Spirit Airlines.
Stay tuned.
