Washington Post: Revisiting the Story Behind Capital One

In the Washington Post, Zachary Goldfarb does a nice job revisting the story behind Capital One (COF), and getting at what makes the company tick. I especially like the scene of Rich Fairbank and Nigel Morris wringing their hands early on:

But [Cap One's Information-Based Strategy] did not seem to be working at first. Fairbank and Morris used car trips to Richmond in a Crown Victoria, munching on fast food and bagels, to keep calm. "We had loads and loads of time to really think through the business model," Morris recalled. "Many times I'd tell Rich, 'I'm losing my mind. I'm not sure if this will work.' " They kept at it, and after hundreds of tests and gathering endless data, the strategy began to pay off. Signet started to reap huge profits. In 1994, Capital One was spun off as a public company, with Fairbank as chief executive.

The information-based strategy guided other parts of the business. Sophisticated exams, similar to IQ tests, were put in place to screen potential employees.

IBS did end up working, of course. And as Goldfarb notes, it now plays a role in just about every decision the company makes. . .

Comments

[Forrest:]

. . . and from what I understand, Capital One's IBS model is now universal throughout the entire credit card industry.

Early on when this IBS was new, Capital One customers were primarily sub-prime, and some would wonder why their rate increased for no apparent reason. The reason was that through the IBS model, it was discovered that the customer's credit rating may have changed, or that the customer may have recently maxed out another card in their wallet, which of course increases risk to Capital One.

2008 Sep 11 10:35 AM