Capital One-Discover deal could hurt Visa, Mastercard dominance, analysts say
By Niket Nishant and Manya Saini
(Reuters) -Capital One Financial's $35.3 billion deal for credit card issuer Discover Financial could take a big slice out of the payments processing market dominated by Visa (NYSE:V) and Mastercard (NYSE:MA), analysts said on Tuesday.
The all-stock deal would give Capital One access to Discover's network of payments processing and settlement services, potentially allowing it to cut its reliance on Visa and Mastercard.
«The acquisition is a negative headline for Mastercard and Visa, in our view,» said J.P. Morgan analyst Tien-tsin Huang. Visa shares fell 1.6% before the bell, while Mastercard dropped more than 3%.
The pair have come under fire in recent years for the fees that they charge for processing payments, with some lawmakers accusing them of a «duopoly». Both have denied the allegations.
Capital One said shifting its card portfolio from the big two global payment processors to Discover's network would help the lender generate $1.2 billion in 2027.
Any transition by Capital One, however, would likely be slow since both Visa and Mastercard renewed their partnerships with the company recently, Huang said.
Since the two payment processors charge higher fees, analyst at TD Cowen said, Capital One would benefit from moving its lower-spending card customers to Discover.
Shares of Discover rose 14.5% to $126.50 in premarket hours, inching closer to the offer price of $138.24. They were set to open at their highest in nearly two years if current gains hold.
The rally was also set to add nearly $4 billion to Discover's market capitalization. Capital One stock fell nearly 4%.
«We will benefit from the additional scale and volumes that come from being the network for other banks,» Capital
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