The Left And Right Make Equally Little Sense Opposing Capital One’s Acquisition Of Discover

Capital One announced a deal to buy Discover. It would make them the largest issuer of credit cards, with about 20% of the market (basically on par with Chase). And it would bolster the weakest of the payment networks, improving competition with Visa, Mastercard and American Express.

There’s no monopoly or oligopoly in credit cards. A ‘closed-loop’ payment network would help Capital One to lower its costs and make better lending decisions. That makes rewards more sustainable, and justifies even heavier marketing spending on consumers. It also will help make credit available.

And frequent flyers get a big win since it undermines the case for the Durbin-Marshall Credit Card Competition Act which is framed as increasing competition among payment networks (Visa/Mastercard) but does so by pushing down interchange and therefore reducing rebates (rewards) to consumers.

Now, mergers don’t always deliver their promised results! But this deal is potentially pro-consumer and doesn’t have any obvious consumer harms. Still, politicians have come out against it in full force. Here’s Elizabeth Warren calling out this “Wall street deal” (Capital One is based in the Northern Virginia suburbs, Discover in Riverwoods, Illinois).

Elizabeth Warren hasn’t ever seemed to meet a merger she likes, even when it doesn’t involve banks. “Big sandwich” and the “foot-long industrial complex” is just as fat a target for her.

Anti-business populism, though, is now just as common among self-described conservatives. Senator Josh Hawley (R-MO) is demanding that President Biden block this deal.

  • President Biden’s anti-trust enforcers don’t take their orders from Josh Hawley
  • This demand is pure grandstanding
  • But helps position Hawley as a populist and as part of the right that’s now nearly indistinguishable from the left on economic policy (trade, entitlements, industrial policy).

Josh Hawley calls it “destructive corporate consolidation at its starkest” and says it will “create a new juggernaut in the credit card market, with unprecedented powers to extort American consumers.” Unprecedented? American Express operates closed loop payments (card issuer and payments network) today, and Chase issues nearly as many cards as this combined business would.

Several commentators have noted that review of this deal might not complete before the end of the President’s current term, and that opposition might depend on the outcome of the election.

I don’t think that makes sense – both because credit card issuance is highly competitive and because this increases competition in payment processing, and also because it’s not clear that a Republican administration led by the current front-runner would revert to ‘normal Republican’ policy. Josh Hawley is one indicator of that.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Congrats, you found one GOP opposed to it. For every one conservative politician you can find that opposes the merger, I can find 100 Dems…and don’t forget that any GOP opposition is immaterial anyway… perhaps like sleepy Joe, you have forgotten who is in power.

  2. Discover Card was the first credit card that I had. The other companies with Visa cards and Mastercard cards wouldn’t give me one due to the lack of a credit card from another company. I don’t use Discover much any more except for some of the offers but I remember who took a chance on me.

  3. I HATE Capital One – they won’t give me their most lucrative credit cards because I am sure I have too much credit and won’t carry a balance.

    I like @jns had Discover as one of my first credit cards and like them – so it would be sad for me to see them taken over by this awful company Capital One. 🙁

  4. @Gary Please take control of your blog. There is no place for vile racism or antisemitism here.

  5. This merger is a great way to increase prices that US consumers to pay by increasing the merchant fees that businesses pay.

    BLOCK THIS STUFF — 3 companies controlling >80% of credit card spend is a recipe for disaster!

  6. Josh Hawley is just a mad opportunist who pines after being the second-coming of his Lord T-rump and has the intellectual consistency of such a power-hungry lunatic. Objectively, the same cannot be said of Elizabeth Warren.

    Let’s see where Lina Khan eventually comes down on this move by Capital One. While I have no reason to doubt her integrity, the back of her mind is probably considering her future after the Biden Admin, so who knows how that plays out being a factor in what goes on when the revolving door is on the horizon. Also, Discovery is too small a player to really mean much in the market and Capital One could use the Discovery boost to help make for more competition in the commercial banking, card-issuing and payment processing segments.

  7. @GUWonder – you may think she’s about to moderate looking to a role in industry, I’d suggest that Biden administration appointees have been far more left-leaning than the President himself precisely because he doesn’t have a future of influence within the party given his advanced age so they’re looking to be influential under future (likely more liberal) leaders.

  8. @Jake – it is absolutely false that you would have “3 companies controlling >80% of credit card spend” under this deal.

    Right now you have 3 payment networks processing that much spend

    The top two card issuers would manage about one-third (36% in fact) of card spend.

    How on earth are you getting to this deal ‘causing’ 3 companies to ‘control’ 80% of card spend?

  9. @Andrew – happy to tell you how it’s less expensive to accept card than cash, but the point here is that payment network competition would increase under this deal by bolstering the weakest network

  10. Señor Leff,

    Remember when Hillary Clinton was considered to be a lunatic left-wing “liberal” wanting a “communist takeover” of America, starting with healthcare? She didn’t really turn out being that way, and still isn’t that way even after her career in government is at a dead-end. [Rush Limbaugh is dead while his talking points live on in reincarnated forms and with new targets.]

    With regard to Lina Khan, she’s really not a “radical Muslim leftist” despite all the scare stories put out about her. Surprised the WSJ didn’t try to play that anti-Obama card this time, as there seems to be a full-on press in play to push a public narrative that this acquisition should be allowed without much scrutiny and to get the likes of Lina Khan to lay low and bow out.

  11. Señor Leff,

    Youngsters tend to be more extremely whatever-leaning than the elders. It has little to do with Biden’s or Trump’s political future or theirs and more to do with what kind of people are the campaign boots on the ground and that young people have long been restless with the ways of the oldies and more extreme than then population as a whole. Of course with the internet dynamic now in play, we get a lot more golden oldies going down or building up wing-nut rabbit holes too.

  12. @GUWonder – this is hardly limited to ‘youngsters’ (unless youngsters is defined down by the age of the presidential candidates from both major political parties)

  13. @GUWonder – Lina Khan’s views on anti-trust are certainly radical and have a mixed (at best) record in court. She was appointed precisely for the radical nature of her views which seek to upend 30 years of anti-trust precedent.

  14. In many ways Lina Khan is a return to traditional Americana when it comes to views on anti-trust enforcement.

    The most predictable thing about the US federal court system is that it’s heavily biased in favor of corporate America, regardless of which Admin first appointed the judges to the federal bench. But it wasn’t always this way. The courts have been stacked with radical corporate apologists for decades now (and the blame for it rests in part to where and how we train lawyers and how and where they make big money for lawyers and how they get nominated and then finally confirmed by the millionaire boys club). It was really the Clinton Admin that got that ball rolling on upending what was long-standing anti-trust jurisprudence in the country.

    Maybe Josh Hawley’s stance on this issue is because part of his schtick is beating up on the “radical” Ivies and law school teachers/teachings that also produced this wannabe “Christian/white nationalist” “right-wing populist” in the US Senate. The schools producing what turns out to be Clintonian-GW Bush-Obama-Trump-Biden corporate apologist judges.

  15. Josh “Coward” Haley needs to run away from this issue as if it were a traitorous mob
    (that he sympathized with) intent on killing him…..

  16. Señor Leff,

    Of course it’s not limited to youngsters. That is why my comment said: “Of course with the internet dynamic now in play, we get a lot more golden oldies going down or building up wing-nut rabbit holes too.”

  17. JorgeGeorge P,

    Tulsi’s getting jealous, since It seems like Nikki Haley is on your mind. 😀

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