What Merchants Need to Know About the Impact of the Pending Capital One-Discover Merger

It’s official: Capital one has completed their acquisition of Discover, after first announcing their intent to do so more than 15 months ago.

Deals of this size have to clear many hurdles to close successfully. On December 19, 2024, Capitol One received approval from the Delaware State Bank Commissioner to proceed with the transaction.

Both companies next had to seek approval from their respective shareholders. In a special meeting held on February 18, 2025, stockholders voted overwhelmingly in favor of the deal; 99.8% of Capital One shares and 99.3% of Discover shares voted at the meeting to approve the merger. Finally, the deal had to receive the go-ahead from federal regulators, with the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency approving the transaction on April 18, 2025.

With the transaction now complete, now is a good time to look ahead. So, I wanted to take a few minutes to think about what a combined Capital One-Discover entity may look like, and what the deal means for merchants going forward.

What's Happening?

On Sunday, May 18, 2025, Capital One announced that it had completed the acquisition of Discover Financial Services, a rival issuer and one of the “big four” card networks operating in the North American market.

“This deal brings together two innovative, mission-driven companies that together are poised to deliver breakthrough products and experiences to consumers, businesses, and merchants,” remarked Capital One co-founder and CEO Richard D. Fairbank.

This $35.3 billion all-stock transaction would make the combined entity the sixth-largest US bank by total assets and the largest US issuer by outstanding balances, which total $250 billion. The Capital One-Discover merger would also put a global card network under the control of a major bank, making the combined financial institution one of two US entities — the other being American Express — to function as both a payment network and a card issuer.

Illustration: A Capital Discovery! Capital One and Discover Merger

Implications for Payment Processing

When Capital One first entered into a definitive agreement to purchase Discover in February 2024, Fairbank praised the deal as an opportunity to “build a payments network that can compete with the largest payments networks and payments companies.”

As a result of the transaction, Capital One will be able to mesh its existing capabilities as an issuer with Discover’s proprietary payment network, allowing the combined entity to tackle global payment juggernauts like Visa and Mastercard head-on.

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This deal will also give the combined financial institution more leverage over merchants. Sellers may feel compelled to bear changes in network policies and approval rates — or even accept potentially higher interchange fees — to retain access to a network owned by the country’s largest credit card issuer.

Existing payment gateways configured to accept Visa- and Mastercard-branded cards may also need to be re-tooled to ensure that they remain compatible with the now-expanded Discover network. These changes may result in out-of-pocket upgrade costs or higher fees for merchants, as providers pass the costs of upgrades onto sellers.

But, there are some noticeable and compelling upsides, too. Discover’s existing payments infrastructure could make the chargeback process for Capital One-issued cards more efficient. The issuer can now avoid Visa and Mastercard’s timelines and restrictions by routing transactions directly through their own Discover network instead. For merchants, this may mean:

Faster settlement times
More streamlined dispute resolution protocols
A unified set of payment rules
Even lower chargeback fees, owing to cost savings from economies of scale

Granted, none of these potential benefits are guaranteed. Time will tell how things shake out between the new entity, processors, and gateways.

How Will This Affect Interchange Fees & Merchant Costs?

One worry among regulators is that the merger would be anticompetitive and result in higher interchange fees for merchants. This concern is not unfounded; as the largest domestic issuer by balance volume, Capital One could present merchants with a “take it or leave it” fee structure. In other words, sellers can either pay higher fees to accept Capital One-issued cards routed through the Discover network… or risk being shut out from the ecosystem altogether.

But, that is the cynical view. It’s equally possible that the Capital One-Discover deal could lead to lower costs for merchants across the board, if for no reason other than to encourage Discover network usage.

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See, Discover is by far the smallest of the big four card networks. Prior to the merger, Discover accounted for just 4% of card purchases by volume. If all Capital One-issued cards become co-branded with Discover, though, the bottleneck would quickly become merchant acceptance. Discover cards are currently accepted at 48 million merchant locations worldwide, a figure that pales in comparison to Visa’s 130 million locations and Mastercard’s 100 million acceptance points.

If Capital One wants to truly give Visa and Mastercard a run for their money, amassing a large base of cardholders is only half the battle. The remaining half involves convincing merchants to take Discover, whether in-person or online. And, the best way to incentivize acceptance is through making fees competitive.

Impact on Merchant Fraud Detection & Chargebacks

As mentioned earlier, the Capital One-Discover merger could bring about chargeback management enhancements.

Think about chargeback representment, for instance. Capital One cards processed through the now in-house Discover network could result in streamlined evidence submission procedures and faster dispute resolution for merchants.

The combined entity could also harness and control billions of more data points than Capital One could manage on its own. Discover’s data-rich, closed-loop network, combined with Capital One’s technology leadership, could result in machine learning models that are better at detecting fraud than what data scientists and developers could build separately.

Beyond anomaly detection, this two-way flow of data could result in better pre-transaction risk assessments. We could see more accurate real-time fraud alerts for merchants, which the resulting entity could upsell as a value-added service to help reduce the incidence of criminal and friendly fraud.

The combined entity may also make changes to policies surrounding dispute acceptance or response timelines, evidence requirements, or liability for fraudulent transactions. It’s also plausible that the existing Discover chargeback reason code system could be overhauled or refreshed so as to accommodate a higher-traffic and more complex card network.

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Other Potential Benefits for Merchants

Illustration: Capital One and Discover - Benefits for Merchants

Merchants may stand to benefit from the merger in several other tangible and practical ways. These include:

New Merchant Programs

Prior to the deal, Discover routinely targeted new merchants in certain verticals by offering concessions like discounted interchange fees. It’s reasonable that the combined entity could continue to offer these new merchant programs as a way to incentivize merchant uptake, especially now that there are new benefits to highlight in the wake of the merger.

Flexible Payment Options for Cardholders

On the issuing front, the combined financial institution could likewise preserve popular aspects of Discover’s current playbook by launching new financing and installment plan options. While these cardholder-facing offerings won’t directly impact merchants, they could encourage buyers to spend more, which could result in lower cart abandonment rates, higher average order values (AOVs), and higher conversion rates at checkout.

Better Fraud Management

The merger could also generate tailwinds for eCommerce fraud management. As discussed previously, the unification of data and technology from the combined entity’s issuing and card network divisions could result in greater security at each stage of the payment card transaction process. Tools that are better at detecting checkout, payment, and post-purchase fraud could also become available to merchants, either for free or on a subscription basis.

Authentication Improvements

Security protocols, like 3-D Secure 2.0 and multi-factor authentication (MFA), can be scaled and deployed across the entire Capital One-Discover ecosystem. This can help curb new account fraud at signup, account takeover attacks at login, card testing fraud at checkout, replay attacks during authorization, and post-purchase friendly fraud.

New Acceptance Channels

Discover is primarily a domestic network, so Capital One-issued cards may no longer be welcome by international eCommerce merchants if the combined entity shifts transaction volume to the Discover network. But, that could be a temporary slump; it’s equally possible that the scale of the merged entity could allow it to drive expanded acceptance for Discover cards abroad. By opening up new market opportunities internationally, this landmark merger can come one step closer to fulfilling Fairbank’s promise to create a rival worthy of Visa or Mastercard.

The Need to Remain Proactive

Merchants have many reasons to be excited about the Capital One-Discover merger. While nothing is set in stone, sellers could benefit from better fraud detection tools, streamlined representments, and unified issuing and card network rules.

Other potential outcomes, like the possibility for either higher interchange fees due to monopolization or lower costs due to incentivizes for new merchants, remains to be seen. But one thing is certain: as the now-largest issuer in the United States, any changes the united Capital One and Discover makes are sure to be consequential. Merchants would be well-served to take close notice.

While relying on an issuer or card network’s fraud detection tools is a good start, it’s often not enough. You’ll still want an end-to-end solution to help you navigate complex reason codes, frustrating representment workflows, or deter sophisticated scams.