Capital One is on a quest to become a credit card juggernaut.

The financial firm announced Monday that it plans to acquire rival Discover Financial Services in a $35 billion all-stock transaction that would combine two of the largest credit card companies in the United States. If the deal is approved by regulators, the firms expect the transaction to close in late 2024 or early 2025: a development that would have a major impact on people’s wallets.

Though it’s far from a done deal, some officials and consumer advocates say they are worried a merger could limit competition in the already-concentrated credit card industry and possibly lead to higher fees and interest rates for cardholders. On the other hand, it may boost credit card rewards.

Either way, experts expect the merger is going to face intense regulatory scrutiny.

“The merger of Capital One and Discover threatens our financial stability, reduces competition, and would increase fees and credit costs for American families,” Sen. Elizabeth Warren, D-Mass., tweeted Tuesday. “Regulators must block it immediately.”

The Federal Trade Commission (FTC) declined to comment to Money on the merger, but analysts say the regulatory agency — along with the Treasury Department’s Office of the Comptroller of the Currency — are scrutinizing the announcement.

“The FTC will undoubtedly take a close look,” says Cris deRitis, deputy chief economist at Moody’s Analytics. “Whether or not it takes action to halt all or parts of acquisition will depend on its findings.”

Capital One and Discover declined to comment.

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How the Capital One-Discover merger could impact consumers

If regulators approve the deal, the combination of two major credit card companies is expected to have major effects on the industry as well as on individual cardholders.

Generally speaking, consolidation is viewed as a negative thing for consumers. Less competition usually means higher prices for the everyday person.

In the case of the merger of Capital One and Discover, it’s not likely to be so clear cut. Capital One isn’t necessarily making the purchase so that it has one less credit card company to compete with. Instead, Capital One executives on an investor call Tuesday spoke at length about their plans to utilize Discover’s payment network.

Network, network, network

While popularly known for its credit cards, Discover also runs its own payment network, competing with the ones run by Visa, Mastercard and American Express. Currently, Discover is much smaller than the other three major payment networks, but Capital One aims to change that.

By being both a major credit card issuer and a payment network provider, Capital One would become an industry behemoth. The only other two-in-one financial company like this in the U.S. is American Express. Combined, Capital One and Discover would dwarf American Express by asset size.

“We have always had a belief that the holy grail is to be able to be an issuer with one’s own network,” Capital One CEO Richard Fairbank said on an investor call Tuesday.

New cards

Capital One says it will move all its debit cards onto the Discover payment network as soon the deal clears. It has plans to move many of its credit cards over in stages, as well.

During this process, Adam Rust, director of financial services at the nonprofit Consumer Federation of America, says current cardholders will be mailed a new card, possibly with new terms.

For customers who shop mostly in the U.S., getting a new card with a different payment network shouldn’t matter much.

Switching to a new Capital One card on Discover’s network from, say, Mastercard or Visa would not be very noticeable because the vast majority of U.S. businesses accept payments via all three. However, it could limit shoppers’ payment options overseas, where Mastercard and Visa have larger footprints.

Credit card rewards

In terms of credit card rewards, an all-in-one card-issuing payment network could be a boon for consumers.

Some experts say Capital One could beef up its rewards. The theory goes that by having its own payment network, Capital One would save money because it wouldn’t need to be paying others, allowing it to offer better rewards as a result. Similarly, Discover’s network could become a stronger competitor, forcing Visa, Mastercard or American Express to lower the fees that they charge businesses to accept payments on their respective networks.

“The interchange fee that merchants pay to use these networks may be reduced,” deRitis with Moody’s says, “with savings passed on to all consumers.”

If the merger goes through, analysts told USA Today that cardholders can also expect better service, rewards points and improved access to airport lounges.

It’s worth noting that at the same time that regulators are deciding whether to approve the merger, a bipartisan group of lawmakers in Congress is attempting to pass the Credit Card Competition Act, a proposal that would require large credit card issuers to make their cards available to businesses on at least two payment networks in an attempt to lower credit card swipe fees. Card issuers have come out vehemently against the bill, saying the loss of revenue would mean they would have to reduce credit card rewards programs as a result.

Fees and APRs

Flashy rewards like cash back and travel points are major draws that get people to sign up for cards. But the reality is that the perks often overshadow the fine print — that is, the annual fees, the late-payment charges and the annual percentage rates.

“Most people don’t pick a card imagining that they won’t use it correctly,” Rust says. “That’s just human nature.”

In other words, consumers tend to focus on all the benefits of using a credit card’s rewards program perfectly, and don’t always factor in the penalties and downsides if they slip up.

That’s where various companies’ terms come into play. Comparing Capital One and Discover’s current terms on the Consumer Financial Protection Bureau’s credit card database, Rust explains that Capital One’s credit cards tend to have higher maximum APRs and fees.

“In terms of interest rates, I don’t think we know, for now, what will happen,” Rust says. “But we can be concerned that Capital One’s approach will become the new norm at Discover.”

But no changes right now

Overall, experts say a Capital One-Discover merger is likely to be a mixed bag for consumers: possibly better rewards at the expense of higher APRs and fees.

All of this comes with the caveat that the deal needs to be approved by regulators who are laser-focused on keeping the industry competitive. And if the merger is approved, these changes aren’t likely to surface until next year.

For now? It’s wait and see.

“There will be no impact on consumers in the immediate term as the merger is reviewed and challenged by regulators,” deRitis says.

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