Capital One Retreating from Teaser Rates

Richard D. Fairbank, Capital One's chairman and CEO, told the American Banker in June that his company would be dramatically scaling back its reliance on "teaser rates." Teaser rates are the low, temporary interest rates that card issuers relied upon heavily during the past decade to attract new customers. Capital One claims that it introduced both teaser rates and balance transfers as card marketing concepts in the early 1990s and there is no doubt that the company employed both effectively in amassing a customer base of 36 million cardholders over the past decade. However, Fairbank says the time for reliance on teaser rates has passed, in part because consumers have been conditioned to expect new ones in the mailbox at the expense of brand loyalty. According to Fairbank, "teaser-rate marketing is a very tricky business. They're an insidious thing because not only have you got an attrition problem but you can also have a change in risk if marketers are going after your best customers."

Capital One is shifting to a marketing strategy aimed at attracting more "superprime" customers with low, fixed rate cards. Their 9.9 percent fixed rate card offer now is among the lowest in the industry. Fairbank also indicated that Capital One is moving on beyond credit cards. Company executives have long-maintained that their database-driven marketing and risk-assessment program—dubbed their "information-based strategy"—can be used to sell all kind of products. Earlier this year the company began promoting its brand name to build recognition among consumers. Next will come a push to cross-sell financial services products other than credit cards.