NEW YORK (AP) — Capital One Financial is betting that Americans will keep shopping and use a credit card to pay for their purchases at stores and on the internet.

Capital One announced Monday that it would buy Discover Financial Services for $35 billion. The combination could potentially shake up the payments industry, which is largely dominated by Visa and Mastercard.

The deal marries two of the largest credit card companies that aren’t banks first, like JPMorgan Chase and Citigroup, with the notable exception of American Express. It also brings together two companies whose customers are largely similar: often Americans who are looking for cash back or modest travel rewards, compared to the premium credit cards dominated by AmEx, Citi and Chase.

“This marketplace that’s dominated by the big players is going to shrink a little bit more now,” said Matt Schulz, chief credit card analyst at LendingTree.

READ MORE Capital One will buy Discover for $35 billion in deal that combines major US credit card companies

In a call with investors Tuesday morning, Capital One executives said they planned to invest heavily into expanding the acceptance of Discover by consumers. While Discover is “almost universally” accepted by merchants, there’s a perception by consumers that Discover is less accepted in the U.S.

Capital One expects Americans to keep using their credit cards and maintain balances on those accounts to collect interest. In the fourth quarter of 2023, Americans held $1.13 trillion on their credit cards, and aggregate household debt balances increased by $212 billion, up 1.2%, according to the latest data from the New York Federal Reserve.

As they run up their card balances, consumers are also paying higher interest rates. The average interest rate on a bank credit card is roughly 21.5%, the highest it’s been since the Federal Reserve started tracking the data in 1994.

Capital One has long has a business model looking for customers who will keep a balance on their cards, aiming for customers with lower credit scores than American Express or even Discover. Once combined, the two companies will have more loans to customers on their credit cards than the much larger JPMorgan and Citigroup combined.

The deal also gives Discover’s payment network a major credit card partner in a way that could make the payment network a major competitor once again. The U.S. credit card industry is dominated by the Visa-Mastercard duopoly with AmEx being a distance third place and Discover an even more distant fourth place. Roughly $6.8 trillion is run on Visa’s credit and debit network compared to the only $550 billion on Discover’s network.

Owning Discover’s network would enable Capital One to get revenue from fees charged for every merchant transaction that runs on the network.

The run-up in consumers’ credit card balances is not all good news. After battling inflation for more than two years, many lower- and middle-income Americans have run through their savings and are increasingly running up their credit card balances and taking on personal loans.

As a result the two lenders have added to the pool of money set aside to guard against defaults. Last year, Capital One’s provisions for loan losses rose 78% to $10.4 billion. At Discover, such provisions more than doubled to $6.02 billion. Profits at both companies slumped more than 30%.

Discover’s customers are carrying $102 billion in balances on their credit cards, up 13% from a year earlier. Meanwhile, the charge-off rates and 30-day delinquency rates have climbed.

Consumer groups are expected to put heavy pressure on the Biden Administration to make sure the deal is good for consumers as well as shareholders.

“The deal also poses massive anti-trust concerns, given the vertical integration of Capital One’s credit card lending with Discover’s credit card network,” said Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition.

It’s unclear whether the deal will pass regulatory scrutiny. Nearly every bank issues a credit card to customers but few companies are credit card companies first, and banks second. Both Discover — which was long ago the Sears Card — and Capital One started off as credit card companies that expanded into other financial offerings like checking and savings accounts.

“The path to approval is a key question mark as banking regulators are scrutinizing large bank transactions closely and this transaction would create a banking institution with over $600 billion of assets,” said Saul Martinez, an analyst with HSBC, in a note to investors.

Under the terms of the all-stock transaction, Discover Financial shareholders will receive Capital One shares valued at nearly $140. That’s a significant premium to the $110.49 that Discover shares closed at Friday. Discover shares rose nearly 14% to $125.78 in morning trading.