Capital One announced its plans to acquire Riverwoods, Ill.-based Discover Financial Services and expects to spend $2.8 billion on integration costs, including tech conversion. 

“Capital One certainly has some good experience in the space. … They have done a number of tuck-ins and so I imagine they have [an acquisition] playbook,” Matthew Goldman, founder and president of Pasadena, Calif.-based consulting firm Totavi, told Bank Automation News.

According to the $475 billion, Mclean, Va.-based bank’s website, its other acquisitions include: 

• Digital concierge company Velocity Black in 2023; 
• Travel management company Lola in 2021; and 
• Online price-tracker Paribus in 2016. 

It could be the end of 2024 or early 2025 before the Discover acquisition becomes final, providing regulatory approval is granted, Goldman said. “They have to get regulators to sign off on all of this and they’re going to have a long time to do the technology planning before they can actually start doing any work,” he said. 

Capital One is prepared to spend $35.3 billion in an all-stock transaction to acquire Discover, and expects to spend $2.8 billion on further acquisition and integration costs, which are expected to be incurred within two years of the closing, according to the bank’s investor presentation released today. 

The bank must complete the merger within 24 months in order to spread out merger and acquisition costs and make it financially beneficial, James White, general manager of banking industry at fintech Total Expert, told BAN. 

Integrating cores

Although the integration process can be costly and time-consuming, Capital One and Discover have one factor on their side: They both use FIS as a core provider, according to data provided to BAN from FINavigator.  Capital One is on FIS Systematics core and Discover is on FIS MISER.  This could make blending tech stacks easier and may lower merger and acquisition costs and operating costs, White said. 

Mergers and acquisitions often cost more than anticipated. For example, the integration of SunTrust and BB&T in 2019 to create the $543 billion Truist has turned out to be much more expensive than expected at the time the transaction was announced. The higher costs has resulted in the need for cost-cutting measures throughout Truist. 

Although the financial institutions are on different FIS platforms, the migration could be simpler than migrating from different core providers, Totavi’s Goldman said. That they are both on FIS is a “net benefit, but it’s probably not as simple as a configuration update,” he said. 

The institutions likely have customized core platforms that will add some friction in the integration process, he said. 

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