Capital One Tests Moving Credit Cards to Discover Network

Capital One’s Discover integration dominated discussion during the second-quarter earnings call, alongside new initiatives, with the bank testing Capital One credit cards on the Discover network while continuing to spend on technology and artificial intelligence (AI).

The company’s results on Tuesday (July 21) indicated that credit card purchase volume totaled $253.8 billion, increasing 15% sequentially and 26% from a year earlier. The year-over-year comparison includes the effect of Discover, which was present for only part of the second quarter of 2025.

Legacy Discover purchase volume increased just under 2% year over year. Purchase volume for legacy Capital One businesses, including Brex and the corporate card business transferred from commercial banking, increased about 14%. Management said most of that increase came from underlying organic growth.

Card loan growth was more restrained. Legacy Discover card loans declined 1.5% from a year earlier, while ending loans excluding Discover increased about 5.3%.

Chairman and CEO Richard Fairbank said Discover remains in what Capital One has called a “brownout” in loan growth during the integration. The company expects the constraint to continue for some time, although Fairbank said Capital One sees opportunities to increase Discover growth after the technology integration is completed.

Shares were up 0.2% in after hours trading Tuesday.

Discover Network Moves From Debit to Credit

Capital One has completed the conversion of its debit cards to the Discover network, and the second quarter included the full quarterly run rate of the associated debit revenue synergies. Global Payment Network transaction volume reached approximately $190 billion, up about 9% sequentially.

The company is now testing credit card volume on the network.

“We are leaning hard into right now testing originating legacy Capital One branded accounts on the Discover network as well as testing the conversion of existing Capital One accounts to the Discover network,” Fairbank told analysts during the call.

Capital One has not announced how much credit card volume it will ultimately move or when. Fairbank said the company will make those decisions after evaluating the tests.

Network acceptance is part of that work. Capital One is addressing remaining domestic acceptance gaps and increasing international acceptance, with particular attention to Mexico, the Caribbean, Canada and the United Kingdom, which Fairbank identified as the four leading international destinations for its customers.

Technology and AI Spending Continues

Capital One is carrying out the Discover integration alongside continued investment in its broader technology infrastructure.

Those investments continue to affect expenses. Domestic card non-interest expense increased 38% year over year, reflecting the addition of Discover as well as continuing technology investment.

Commentary during the call indicated that Capital One has realized about one-third of the announced Discover operating-expense synergies and expects to achieve the remainder by the second half of 2027.

Domestic card credit measures improved during the quarter. The net charge-off rate was 4.71%, down from 5.05% in the first quarter and 5.20% a year earlier.

The delinquency rate ended June at 3.39%, down 31 basis points sequentially and 21 basis points year over year. Management said credit trends were similar in the legacy Capital One and legacy Discover portfolios.

Capital One also released $662 million from its allowance for credit losses. CFO Andrew Young said the domestic card allowance reduction reflected “continued favorable observed credit in the quarter” and a modest reduction in the consideration given to economic uncertainty.

Consumers Continue to Spend and Pay Down Balances

Capital One’s card results showed continued spending alongside relatively high payment rates.

Fairbank said spending growth was being driven by both account growth and “steady growth in spend per customer.” Payment rates remained “meaningfully above pre-pandemic levels across all of our customer segments,” while revolving rates have stabilized near pre-pandemic levels across the company’s major products and segments.

Those higher payment rates also help explain why loan balances are not growing as quickly as purchase volume. Fairbank said elevated payment rates “hold loan growth back a little bit,” while also associating them with stronger credit performance.