Capital One/Discover Merger Not a Threat to Competition, Overregulation Is  

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The proposed merger between Capital One and Discover is not a threat to competition in the credit market, but there is one big looming threat to competition, says a CEI expert.

Statement by John Berlau, CEI Director of Finance Policy:

This proposed merger of a credit card issuer with one of the relatively smaller credit card networks comes at a time when there are numerous payment options, including Venmo and Zelle, and new credit options such as buy-now-pay-later. Discover is currently in fourth place in card network size, far behind its competitors in its share of the credit card market. By boosting this card network’s resources, the merger could actually create more robust competition against Discover’s bigger rivals, leading to an increase in benefits for consumers.

The real threat to competition in the credit market and other markets is not mergers but regulation that acts as a barrier to smaller financial players. The Durbin-Marshall bill, for instance, threatens the ability of small banks and credit unions to issue credit cards due to the reduction in revenue from interchange card processing fees on retailers that the legislation aims to slash. And the bill would also disproportionately benefit the nation’s biggest big-box retailers. 

To increase true competition that benefits consumers, policymakers should allow this proposed merger to proceed and reject regulations that put barriers on small and startup firms in credit and other markets.

(Disclosure: John Berlau owns shares in Capital One)


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