Why a major change at US’s biggest credit card provider could make it harder to use your plastic abroad

Capital One has acquired its rival Discover after final approval from regulators — but experts warn the merger could cause headaches for customers traveling abroad.

The $35.3 billion takeover — which will create the US’s biggest card issuer — was initially under scrutiny from the US Department of Justice over antitrust concerns.

However, the DOJ said it would not challenge the deal, and both the Federal Reserve and the Office of the Comptroller of the Currency, a banking regulator, signed off on the merger.

While the merger will be a major boost to Capital One’s customer numbers it also gives the bank control of Discover’s payment processing network — a rival to services offered by Visa, Mastercard and American Express.

Payment processors serve as intermediaries between merchants and card issuers — and take a small cut of every purchase.

Until now, Capital One has relied on Visa and MasterCard networks, which are widely accepted worldwide.

One major drawback for consumers is that once Capital One cards shift to Discover’s network — less common outside the US — travelers could face limited payment options, according to experts.

‘In most cases in the US, Discover is more or less accepted everywhere that Visa, MasterCard, and American Express are,’ Matt Schulz, chief credit analyst at LendingTree, told Fortune.

‘Where you may run into more issues is with international travel because Discover may not be as widely accepted.’

Although most Capital One cardholders will be moved over to the Discover network over time customers’ cards and accounts remain the same as they were before the deal, a joint statement said on Monday.

The firms reassured consumers that any future changes would be communicated to them clearly.

‘Capital One intends to continue to offer Discover credit card products as Discover-branded cards alongside the other consumer cards currently offered by Capital One,’ the statement added.

Capital One CEO Richard Fairbank previously said he expected to move over 25 million Capital One cardholders and over $175 billion in Capital One purchase volume on to the Discover network by 2027.

‘This injection and volume in the network will help Discover be competitive with the leading network.’

Capital One is the nation’s ninth-largest bank by total assets, with 259 physical branch locations, 55 ‘Capital One Cafes’ across the country and a major online banking operation.

Discover Financial, meanwhile, is a mostly online bank with a single physical branch in Delaware.

Capital One now owns one of the largest payment-processing networks in the country

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If the merger goes through, Capital One would be the largest card issuer in the country based on outstanding credit card loans, becoming even larger than JPMorgan Chase

Another key element of the merger is how it could affect competition within the payments network space.

There is a possibility the merger reduces competition among issuers, and progressive Democratic lawmakers have long fought against bank consolidation, arguing it increases systemic risk and hurts consumers by reducing lending.

New research from the Consumer Financial Protection Bureau (CFPB) found that larger credit card issuers charged higher interest rates and annual fees than smaller banks, due to a lack of competition.

‘Anytime there’s more consolidation and less competition, there’s always the possibility for rates and fees to increase, but I don’t see it being a huge issue,’ Schulz said.

He argues, however, that the deal could in fact make the payment processing space more competitive, challenging the dominance of MasterCard and Visa.

This could lead to better rewards on credit cards for consumers as issuers compete for customers.

‘One thing that will be interesting to watch is how the credit card rewards programs are blended together,’ Schulz added.

‘Capital One will have to decide how they handle Discover miles and if they keep those two rewards programs separate or if they bring them together, and that decision will impact consumers.’