The Lever, March 1, 2024, The Fed Is Behind The Credit Card Merger
Capital One’s recently announced attempt to buy the credit card company Discover hits at all of these elements of the business. While the merger looks like a credit card bank buying another credit card bank — and it’s certainly that — it is more like a Big Tech merger, where a bank is trying to turn itself into a platform with an app store-like power over a class of customers, in this case merchants. The key quote from Capital One co-founder and CEO Richard Fairbank on the call announcing the deal was this: “The holy grail is to be an issuer with our own network.”
But the Fed also punched a hole in the Durbin Amendment. When writing the rule, the Fed went along with lobbying from American Express, and in its 2010 rules exempted three-party networks from regulation, only applying it to Visa and Mastercard. And this brings me back to Capital One, whose CEO made this point explicitly on the investor call announcing its attempt to buy Discover.
