In May, Capital One (COF) closed its $35.5 billion acquisition of Discover Financial Services (DFS) . Not even three months later, it’s making a big change in support of its big buy, starting with debit cards.
On Wednesday, Capital One announced that it would transition its Capital One debit cards from Mastercard (MA) to Discover. The change will mean that checking account customers will receive a new card, with fresh card digits, CVV codes and expiry dates. Their account number and PIN code will stay the same.
New cards will be shipped to customers on a rolling basis, per Capital One. The change will eventually mean that all Capital One customers with 360 Checking, Total Control Checking or other accounts with debit card features will use Discover.
Debit card users will have to activate the new card to make use of it. However, the change will mostly be invisible to customers, outside of rare situations (at least in the U.S.) where they encounter a merchant which does not support the Discover Network.
Capital One Discovers future (without Visa and Mastercard)
Though the change might be invisible to customers, it could augur significant changes at America’s ninth-largest bank. And for investors, the change could mark the starting gun for a transition which one day might affect its robust credit card business.
Capital One’s robust portfolio of credit cards, which includes the Venture X and Savor Card, currently make use of the Visa (V) and Mastercard payment networks. However, it is anticipated that a number of their card products will be swapped over to Discover in 2025 and 2026.
Such a change would help Capital One capture the 1% network fee that it pays to competing networks on every card swipe, a form of revenue called interchange. Capital One says that such a switch could generate an extra $1.2 billion in revenue by FY 2027.
However, it remains to be seen how quickly a transition of card products could take place at the company, which boasts America’s fourth-largest credit card business by balances. There are over 110 million card accounts at Capital One, plus the 61 million Discover customers added to the fold after the recent acquisition.
Changing a large portion of those cards over to Discover could help Capital One generate billions in extra revenue from interchange. The move could have a meaningful impact on Visa and Mastercard, the payment network duopoly that process over 90% of U.S. payment volume, which counts Capital One as one of their largest customers.
