The news: The Capital One and Discover deal received the final regulatory approval and will close on May 18, per a press release. Combined, the two companies will have $660 billion in assets.

The Federal Reserve and the Office of the Comptroller of the Currency (OCC) gave conditional approval of the deal.

• The Federal Reserve's approval comes with the condition that Capital One will comply with its action against Discover, which includes a $100 million fine for overcharging interchange fees from 2007 to 2023.
• The OCC’s approval is pending corrective actions to address the root causes of outstanding enforcement actions against Discover and remediate harm.

How we got here: Capital One and Discover have been working to gain approval for the deal and fight concerns like that the deal would hurt competition in the subprime sector.

And they’re already positioned to act on the approval.

• The two have been working on integration planning—including how to address potential issues like Discover’s limited international acceptance.
• Discover has also streamlined its operations and resolved regulatory issues. The company sold its student loan portfolio, settled its class-action lawsuit regarding card misclassifications, and favorably resolved a long-standing antitrust lawsuit against Visa.

What this means: The megadeal will dramatically shake up the payments and banking industries.

One of the biggest changes will be to the card network landscape. Capital One will switch some of its cards from Visa’s and Mastercard’s networks to the Discover network. This will shift competitive dynamics. Given most of Capital One’s volume is on the Mastercard network, it would more so affect Mastercard than Visa. This could widen Visa’s lead as the largest card network. And if Capital One converted nearly all of its credit and debit cards to Discover, it may also push the network past American Express, which was more than five times its size in 2024, per our forecasts.

Capital One will also become the largest credit card issuer and the sixth-largest bank by assets, propelling it past Goldman Sachs, PNC Bank, and Truist Bank. The combined entity will be able to capitalize on its vast size and resources to improve its margins and innovate its products and services.

Our take: Ramifications of this deal are going to be huge and far-reaching for years to come, creating a new card powerhouse.

This may also be the start of more consolidation in the financial services industry as new technologies, digital fintechs, alternative payment methods, and other dynamics make incumbents rethink their strategies: Global Payments just announced it will acquire Worldpay for a staggering $24.25 billion, redrawing lines in issuing, processing, and acquiring.