Recently a YouTube video was seen with the topic of how indebt the average American was. The person said according to the Federal Reserve statistics, the average credit card debt was $6,000 and climbing because the average person was making minimum payments. There are many things you can do with a statement, one the person asked why are savings so low? another person might say whoever owns the debt is likely a good investment because the average person is making minimum payments. This article is about the owners. The 3 big companies of credit cards are VISA, Mastercard and American Express or Amex. They all have slightly different business models.

Amex is a closed loop company which both issues and processes its own information. They charge merchants a higher price to accept which is why very popular retail companies tend not to accept Amex, but high spend retail places do. VISA and Mastercard issue their cards through banks. It used to be banks had to take one or the other, but now days, in many banks you can have either.

VISA and Mastercard provided the infrastructure to run the process, which is why debit cards work, the banks pay a fee to VISA and Mastercard for their infrastructure.

In an article by Anirban Sen and Michelle Price of Reuters, Capital One Financial announced they will acquire Discover Finanical Services in an all stock transaction valued at $35.3 billion. Discover shareholders would receive 1.0192 Capital One shares for each one Discover share.

Capital One is valued at $53.2 billion and is the 4th largest US credit card market by volume in 2022 and Discover has a market capitalization of $27.6 billion is number 6.

In turns of assets, Discover was the 27th largest bank with $150 billion in assets according to the December Federal Reserve data ranking insured US banks, with Capital One was the 9th largest at $476 billion. The combined entity would jump to 6th largest US bank.

Discover Financial model is closer to Amex as it process its own cards. If merged with Capital One and Capital One switched from Mastercard and VISA, it could process its own cards and that would be worth $600 million a year in potential savings. ($300 billion x 0.2 percent fee). Capital One believes the number would go to $1.2 billion by 2027.

According to Jeremy Kress, a University of Michigan professor of business law, the merger would be the first test of bank merger regulation since the Biden administration’s executive order on promoting competition in 2021.

The agency titled the Consumer Financial Protection Bureau noted in mid-February, small banks and credit unions tended to offer cheaper rates than the largest 25 credit card companies across all credit score tiers. The agency has a view on bank mergers.

Linking to dividend paying stocks, as an investor you like near monopolies because the company can regularly produce profits to pay dividends. However, the political world likes the illusion of choice or competition. In some industries the barriers to entry keep the near monopolies, in other industries other viewpoints need to be taken into consideration. In the meantime, Mastercard and VISA offer terrific margins.

There are more questions than answers, till the next time – to raising questions.