Credit card issuers, bruised over the past two years by significant economic setbacks and regulatory changes, face the possibility of yet another shock, one analyst contends: a large, branch-based issuer potentially taking over another issuer or a major card network.

Discover Financial Services, American Express Co., Capital One Financial Corp. and Alliance Data Corp. are all potent card operations without major branch facilities that a large issuer could acquire to become an even more-powerful force, Sanjay Sakhrani, an analyst with the New York-based equity research firm Keefe, Bruyette & Woods, said in a recent report forecasting issuers’ third-quarter earnings.

Discover, with strong capital levels, lower-than-average credit card customer turnover and a solid card-acceptance network, is the industry’s most attractive potential major acquisition, Sakrani wrote. And the most likely buyer would be “a bank with processing synergies to maximize the value they can extract from all of Discover’s assets,” he said.

Possible acquirers matching that criteria include U.S. Bancorp, JPMorgan Chase & Co. and Bank of America Corp., but Wells Fargo & Co. and PNC Financial Services Group Inc. could also fit the bill, Sakhrani speculated.

A foreign buyer could come into play, too. “Outside the U.S., there are banks that have wanted to get into the U.S. card industry and have a very small presence, and there may also be other nonbank suitors,” Sakhrani said.

A branch-heavy bank purchasing Discover could expand the network’s reach and provide Discover with a less expensive source of funds through deposit. It also could “generate significant savings in operating, ... marketing and professional expenses,” Sakhrani wrote.

Another scenario could bring a large card issuer together with MasterCard Worldwide, Visa Inc., a merchant acquirer or an international network to acquire different pieces of Discover, Sakhrani suggested.

Discover’s card-receivables portfolio could fetch a premium of at least 10% from an issuer. And Discover’s card-spending volume plus the income from its third-party card-issuing segment, including Diners Club International and Pulse PIN-debit network, would be attractive assets for Visa or MasterCard, Sakhrani said.

“Despite all the regulation and legislation that has occurred in the space, we believe credit cards will remain a very lucrative asset class that banks will look to grow within their portfolios,” Sakhrani wrote.

A Discover spokesperson says the company does not comment on speculation.

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