Capital One has a storied history in payments. The firm launched in 1994 as a monoline bank. It is a spinoff from Signet Financial (now Wells Fargo), with all revenue derived from credit cards. In a strategic move, the firm expanded into auto loans in 1996 and retail banking in 2005. Along the way, Capital One moved into private-label credit cards. It took a position in ClearXchange, a peer-to-peer platform later sold to Early Warning. Early Warning is a bank consortium now the backbone of Zelle.
Technology has always been a strong point. If you follow the firm, you know that the founder/CEO Richard Fairbank is a master at applying technology in the payment space. The Credit Card Hall of Fame would make a note of Mr. Fairbank, if such a list of payments names existed.
Technology for the Payments Space
Today, the firm issues no less than 30 different card plans. They range from the Capital One Platinum Mastercard, which targets the credit impaired. And they extend to the Capital One Venture Rewards Card, aimed at top FICO scores. Capital One Venture Rewards Card offers a 75,000-reward point bonus.
The firm made its mark in credit cards using advanced proprietary technology for pricing, risk management, and collections. Using their targeting, they can send the right offers to the right segment and price according to risk. They will push risk expenses and operational costs to the appropriate card program.
Capital One creates the right asset mix in card and non-card products. This enables them to address the best and worst customer segments. Capital One is in a strong position as the economy enters a downshift caused by inflation and surging interest rates. Their most recent quarterly report indicates a slight reduction in marketing expenses, most likely to react to the economy. They also indicate an 11% increase in operating expenses, which fund their credit risk provision and capacity in collections.
Capital One Moves into Technology Vendor Space
Today’s story is on Capital One’s move into the technology vendor space, an exciting revenue channel for the firm built on analytics and high-tech. VentureBeat reports:
- This summer, after a years long journey creating and developing its own data management solutions, Capital One launched a new line of business, Capital One Software, to sell the data management and related software products it had developed to other companies looking to transition to the cloud.
- It represents a culmination of the bank’s efforts to transform itself, its technology, and its organization, as well as a goal to offer what it has learned along the way and the solutions it has developed and tested, to help other companies achieve the same transformation.
Like Mr. Fairbank, the business head, Ravi Raghu, has been with Capital One since the beginning. He has had leadership roles in Capital One’s card, unsecured lending, auto finance, and home equity businesses.
Data and Cloud Computing
In VentureBeat, the interview with Ravi Raghu highlights “the story behind how Capital One transformed itself, scaling up its use of data and cloud computing, and then creating a business to sell its software to third parties.”
- According to Raghu, this journey began, in some ways, back in the founding days of Capital One since “data was at the heart of … our whole… journey as an information-based strategy company, and along the way, we realized that … to be a really well-recognized bank … to be a top bank, we also needed to be a great technology company.”
- To do so, Capital One first scaled up its own use of data and cloud computing, which Raghu said was driven by the desire to provide “real-time personalized experiences for our customers,” and become “more of a cloud-first company.”
- “We declared that we would go ‘all in’ on the public cloud in 2016; we completed that journey in 2020,” he said, and “that entire overhaul took the entire company, and all of us rallying together, to pull that off. And it is on that foundation that we have this opportunity to … build up this business called Capital One Software,” he says.
- “We realized early on that the bank of the future is a technology company,” combining “the best of breed of what technology companies have, and the best of breed of what … banks are known for, risk management …. Having recognized that early on, we made specific choices in our journey to become that technology company.”
To the Future: Payments and Technology Vending
Capital One remains a top payments brand. And today, they enter the world of technology vending. They have a solution that will help those moving or currently in the cloud. The upcoming credit storm is anticipated in 2023. This move is as intelligent as the firm’s plan to diversify beyond credit cards. It will keep Capital One at the forefront.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group.