<News alert> Visa’s market share under pressure due to the potential deal between Discover Financial and Capital One (-ve)
- Capital One’s $35.3b acquisition of Discover Financial poised to shake up the US payment landscape, making the combined company a major player in the US credit card market
- The deal expected to give Capital One access to Discover’s payment network, which may take the market share from Visa
- The deal may face regulatory hurdles
Capital One Financial’s (COF US, NR) US$35.3b deal for Discover Financial (DFS US, NR) would create new competition for Visa. The deal is expected to establish the biggest US credit card issuer with around $250b in card balance and a market share of 22%, according to TD Cowen. Additionally, the deal will also give Capital One access to Discover’s payment network, allowing it to reduce reliance on Visa’s payment network. According to Capital One’s estimation, shifting its card portfolio from other payment processors to Discover’s network would generate $1.2b in revenue in 2027.
Visa may face headwinds in losing market share and increased competition in the US credit card market, despite having lower exposure to Capital One compared to Mastercard, with Capital One only accounting for 4% of Visa’s US purchase volume, according to street estimates. We expect that the transition will likely proceed slowly since Visa recently renewed its partnership with the company. Approval from the Federal Reserve and the Office of the Comptroller of the Currency (OCC) will be required for the deal to proceed. The share price of Discover and the valuation of the deal suggest that investors are assigning only a 50% chance to the deal being completed.