The technology bank - Capital One

Chief Executive, The, June, 1997

By ditching the traditional bank model and embracing the strategic approach of more agile, dynamic technology companies, this CEO changed the nature of his company's business, sent profits soaring - and made credit card history.

At least five years before Bill Gates riled the collective feathers of the banking community by labeling banks "dinosaurs," the macro trends in society were already pointing to the necessity for sweeping change in traditional financial services.

Back then, in 1987, I was working as a consultant to large money center banks, along with Nigel Morris, now president and COO of Capital One. As we watched the information revolution take the business industry by storm, we had something of an epiphany. The availability of vast stores of information was fast giving rise to an unprecedented opportunity that would revolutionize the credit card business: the ability to create large-scale scientific laboratories for developing and testing mass-customized credit card products and services. We knew that the flexibility of new direct marketing channels were affording the potential for the kind of customization that brick-and-mortar could never allow. Essentially, our vision was to provide a unique product and service package for every single customer, based on that customer's financial circumstances at the time of creation, and then adapted over time to the changing nature of that customer's circumstance.

BUt the real question was: how to do it? The concept was foreign to many in the banking industry; most credit card businesses were being run by bankers that had grown up on the heritage of face-to-face, judgmentally based decision-making. We wanted a credit card marketing approach powered by data mining, statistical analysis, actuarial models, and enterprisewide availability of information. But most banks were trapped in traditional organizational structures - i.e., separate unintegrated marketing, credit, and IT departments; as such, they were unable to mobilize technology-based solutions. It took a year and visits to 25 banks to sell our vision, and Signet Banking Corp. finally gave us the go-ahead.

We joined Signet as executives and assembled a team of technologists, business strategists, and marketers, but did not separate them into individual groups - even physically. Instead of having business managers devise strategies, then bring them to technologists, we wanted a strategist, a marketer, and a technologist sitting within 10 feet of each other, co-developing strategies. Not surprisingly, this required radical change in corporate culture; we essentially had to throw out traditional management models. Our hiring practices really illustrate the change. Rather than focusing on years of experience within the financial services industry, our greatest emphasis is on the demonstration of raw talent, and the willingness and ability to change and grow with the company. A nimble and agile company needs people within the organization who are equally nimble and agile. Our CIO, Jim Donehey, for example, has experience in five disparate industries: manufacturing, distribution, major marketing, corporate real estate, and investment banking. It is precisely this diversity that allows us to broaden our vision to become more of an information technology company for the credit card industry than a traditional bank.

Naturally, we wouldn't have been successful, had it not been for the unique ability of Signet's management to look beyond the short term. Sadly, our American capitalist system puts incredible pressure on delivering short-term earnings, a limited approach that prevents companies with vision from really achieving long-term growth. The infrastructure investment we made at Signet did not pay off for four years, but when it did, it paid off big.

Today, Capital One, fully on our own since February 1995, has $12.6 billion in credit card receivables - up from $1 billion in 1988 - and 9 million customers, up from just 1 million then. We have an infrastructure that supports the testing and management of thousands of parallel streams of customized products and services. And, as any IT company must, we always keep our eye on the future. When a new product has proven successful in testing and we introduce it to the market, we begin simultaneously developing and testing a new generation of card products in our laboratories. This assures us that when and if a new Capital One product becomes mainstream - as did the balance transfer product that was originally our brainchild - we will have something else in the works to help us maintain our competitive advantage.

Naturally, over time my own role has evolved. When this dream began, there were just a few of us, rolling up our sleeves and getting our hands dirty; now I'm somewhat more removed from the details. But I continue to stay very actively involved in the continual shaping of our strategic direction and the business technology solutions we have in testing. As I know well from experience, having the continued support, understanding, and commitment from senior management is the only way to bring a dream to life.