Unpacking the consumer impact of the Capital One and Discover deal

One of the questions surrounding the Capital One-Discover deal is how the deal will impact the product mix, CX at the incumbent institution and by extension how these changes (if any) will impact consumers.

One catalyst for the merger may be that Discover and Capital One customers have complementary attributes and would be better served by the combined entity.

Underlying synergies

Discover customers are more likely to consider Capital One as an alternative and vice versa, according to John Cabell, managing director of payments intelligence at J.D. Power. 

“It is true that both companies have fewer affluent consumers than some competitors. But Discover customers are likely seeking another card with Capital One that may be a Visa/Mastercard product to ensure ubiquitous card acceptance and rich rewards, whereas Capital One customers may be seeking another product with the reputed consumer financial care offered by Discover,” he said. 

Capital One customers particularly prefer the Discoverit Cashback card, and Discover customers tend to favor Capital One Platinum and Quicksilver Rewards cards more than other alternatives on the market, according to Cabell. 

These complementary attributes will most likely pave the way for changes in products and services as well:

Rewards debit card

The 2010 Durbin Amendment which caps interchange fees on debit cards for large banks only applies to open networks like Visa and Mastercard and not on proprietary networks like Discover and American Express. This may allow Capital One, which plans on moving a quarter of its 100 million cardholders to the Discover network, to offer cash-back rewards on debit cards. 

Moreover, Capital One may also leverage its rewards and data expertise to introduce new offerings like a rewards linked debit/credit card where customers can earn reward points that can be applied interchangeably between debit and credit purchases, according to Richard Winston, global industry lead of financial services at Slalom, a technology and business consulting company. 

Currently a similar dual function card is offered by the fintech Upgrade, called the OneCard. “There’s really no fundamental reason why you would use a different card to pay for debit than credit. It’s just the way the payment rails are organized. So why not simplify it for the user?” said Laplanche, in a Tearsheet podcast last year. 

Due to the relatively low margins on interchange fees for debit cards, banks have had little reason to differentiate their card products in the market in this manner, whereas fintechs which are jostling for position in customers’ wallets have already capitalized on this absence. With Discover’s debit cashback program, things may finally fall into place for an incumbent to combine debit and credit offerings. 

Small business credit cards

Discover no longer issues small business credit cards, but Capital One is a major player in this area and may seek to relaunch Discover’s small business products, according to J.D. Power’s Cabell. However, the jury is still out on whether the change in product mix or Capital One’s ownership of the Discover payment network will translate to cost savings for small businesses.

“In the past, similar large-scale mergers have mostly worked to benefit larger corporations instead of the everyday mom-and-pop shop,” said Eric Cohen, CEO and Founder of Merchant Advocate, a company that assists businesses with cost saving on credit card processing fees. 

But SMBs may realize some cost savings if Capital One chooses to promote Discover network without increasing interchange fees, but those savings will come later rather than sooner, he added. 

The UX of it all

With two major brands joining together, an important question is around how the user experience may change due to the merger. It is unlikely that the merger would result in a patchwork UX, according to Peter Ramsey, UX consultant and founder of Built for Mars. “It’s never really like they take 50% of the UX from Capital and 50% from Discover, and merge them.”

Most likely the brands would run in parallel for a while with the barely noticeable addition of a text label reading “Part of the Capital One family”, at least for the first 24 months or so, said Ramsey. 

A precedent for this kind of merger comes from the UK, where Lloyds TSB and Halifax Bank of Scotland merged, leading to very little change in the short term for the consumers. Over time the banks merged their tech stacks and now their designs look similar, said Ramsey. 

“A hard acquisition would be like saying we’ve killed Discover, now download the Capital One app,” he added.

The worst thing to do here would be to combine the UX design of both brands because it may result in the “magic of both being lost”, he added. 

While the Capital One and Discover merger may not change how consumers interact with the brand, it may change what they interact with and why. For Capital One, the most consumer-friendly decision would be to keep the friction as low as possible through the UX, while giving consumers more reason to stay with the respective brands by tweaking the product mix.