Capital One CEO Richard Fairbank speaks about the growth of the credit card industry. Photo by Kevin Greiner
Capital One CEO Richard Fairbank speaks about the growth of the credit card industry. Photo by Kevin Greiner
Last week, Fairbank spoke to UMBS students at Campus Inn about his experience transforming the tiny credit card operations of Signet Bank into Capital One, the ninth largest credit card issuer in the U.S. Fairbank made a name for himself by utilizing some of the most innovative marketing techniques in the industry - techniques that increased the value of Capital One's bankcard portfolio from $200 million in 1988 to over $2 billion currently. In the process, Fairbank helped redefine the rules of the game for an entire industry.
Not a banker by trade, Fairbank stumbled onto the credit card industry by chance. As a consultant in 1988, Fairbank recognized an industry ripe for change due to dramatic advances brought on by changes in information technologies. And according to Fairbank, "The traditional leaders in the industry were the last to see it." Traditional credit card issuers still viewed themselves as being in the banking business, rather than the Information business that drove the profits of a successful card issuer.
Fairbank understood that information technology allowed issuers to use scientific methods to determine the most effective 1) product mix, 2) credit policy, and 3) receivables collections methods. "Information meant everything to the business and too many issuers were doing things intuitively," according to Fairbank. Scientific testing meant issuers could use vast databases to be much more precise in targeting the most profitable customers - those with high balances who paid the minimal every month.
Back in 1988, after failing to convince any of the major credit card issuers to implement his ideas, Fairbank joined Signet bank, which at the time was a minor player in the industry. To build market share, he helped pioneer the concept of "balance transfer" from a customer's existing credit cards. Skeptics initially argued that Capital One was attracting customers who were more likely to default or transfer balances to another card after the promotional rate expired. To overcome these obstacles, however, the company used extensive market testing and consumer profiles to find those high-balance customers who were least likely to transfer. Testing also allowed the company to attain a default rate less than half that of its larger competitors.
Spun off from Signet in a public offering in 1995, Capital One now uses its database of 200 million U.S. consumers to "slice and dice" over 3000 different card products. According to Fairbank, the company conducts over 9000 different consumer tests every year to determine the most effective product mix. The company embodies the concept of "mass customization."
Fairbank has no intention of stopping with just credit cards. With Capital One's expertise in information-based marketing techniques, Fairbank has turned his attention to a variety of new ventures in areas ranging from financial services to mail-order retail to telecommunications. Fairbank has focused his company of young entrepreneurs - the average age is only 28 - on the task of finding these new applications and leveraging Capital One's core competency.
For Fairbank, Capital One fulfilled the dream of all entrepreneurs who, "Have a dream and get in situations where they can make a dream happen." And he adds, almost as an aside, "You get to make a little money along the way."