Over many years,I have been fascinated by this company Capital One.
In 1988, Rich Fairbank and Nigel Morris were consultants with a vision. They went to a series of banks that issued credit cards and proposed their “Great Idea”. The “Great Idea” (or information-based strategy) was:“use of rigorous scientific testing to drive mass customization, enabling them to deliver “the right product to the right customer, at the right time and at the right place”
They presented their idea to 16 banks (to help them transform their credit card operations)e.g., Citibank, Chase, Bank of America, Bank of New York, Chemical Banking
They were rejected by all of them
“It can’t be done” - it’s too expensive and the data that you need on individual consumers to make the strategy succeed is simply not available to the bank
Cut to today:
"Credit cards aren't banking -- they're information," declares Rich Fairbank, 48, chairman and CEO, of Capital One. "When we started this company, we saw two revolutionary opportunities: We could use scientific methodology to help us make decisions, and we could use information technology to help us provide mass customization."
Here is an interesting account of Capital One:
"The telephones at Capital One Financial Corp. ring more than one million times a week. People call to ask about their Card balance, or whether a recent payment was received, or why their interest rate has jumped. And more than 1 million times a week, here's what happens -- before a caller hears the first ring:
The instant the last digit is punched, high-speed computers swing into action. Loaded with background information on one in seven U.S. households and with exhaustive data about how the company's millions of customers behave, the computers identify who is calling and predict the reason for the call. After reviewing 50 options for whom to notify, the computers pick the best option for each situation. The computers also pull and pass along about two dozen pieces of information about the person who is calling. They even predict what the caller might want to buy -- even though he or she isn't calling to buy anything -- and then they prepare the customer-service rep to sell that item, once the original reason for the call has been addressed.
All of these steps -- the incoming call, the data review, the analysis, the routing, and the recommending -- happen in just 100 milliseconds. That's one-tenth of a second, or one-eighth of the time that elapses between beats of a human heart".
By mid-2008, Capital One’s return on investment was over 1368% since its founding, it employed more than 31,800 people, and had revenues over $15 billion.
Terabytes of consumer data are analysed statistically to generate potential risk profiles. For example, someone who responds to an invitation is a lesser credit risk than someone who calls up on the phone and asks for credit. Combined with guesses about how the environment is changing, a profile or hypothesis can be tested with an offer – interest rate, payment options, perquisites, or rewards – for credit services. Over the course of a year, Capital One’s managers can conduct over 50,000 of these “tests.”
Interesting points from a Marketing perspective:
- What other industry is ripe for information led strategy. Can you imagine a Telecom company built on this edifice? What would it be like? Telecom is growing like crazy in India today & yet in some urban cities penetration is now over 100%. Can an entrepreneur build a Capital one “look alike” in the Indian telecom space?
- Could the microfinance industry produce the Indian Capital One? Obviously it needs someone who has the vision to put together an “information led” institution & the guts to hold the strategy through its early years!
- New government restrictions in the US may force Capital One to reinvent itself for a new age of regulation. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, for instance, will require Capital One and other lenders to take new steps to ensure that customers know what fees they will pay if they exceed the limits on their credit cards. This could hurt Capital One’s business, because it relies more than most other issuers on late fees for revenue.