A potential merger between two of the largest credit card entities in the U.S. market is big news. This merger would result in a new fourth-largest U.S. issuer. But don’t let the true headline get buried: it may hint at a transformative shift.
Should the deal make it through the regulators and courts, the resulting entity would not be a first. Consider American Express, which began issuing commercial charge cards (not credit cards) in 1958. After gaining a banking charter in 2008, it diversified its offerings and entered the consumer credit card sector in earnest. American Express focused on issuing commercial and consumer credit cards, not on leveraging the synergies of owning the card account and network. Will Capital One take a different approach?
With Discover’s consumer card network and Capital One’s position in digital consumer banking, the combined entity’s goal is unclear. The true value of this potential acquisition rides on the ability to leverage and innovate based on a combination of capabilities and resources that have not existed under one roof to date: credit card network, debit network, the fourth-largest credit card issuer, merchant services, and bank charter.
What will this do to the four-party model? It will be interesting to see, but it will be hard to predict where this new entity could go. The future state is limited only by its leader’s imagination and the regulator’s sense of adventure and receptivity to new and innovative products and services that may result.
Stay tuned as we all observe how this amalgamation might shape the industry and pave the way for new strategic directions in the realm of credit services and consumer banking, exploring new territories of innovation and adaptability that could define the future of financial services.
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