Capital One Aiming for Superprime Customers

One of the largest contributors to the direct mail surge of card offers last year was Capital One. The company mailed approximately 1 billion offers, or 30% of total direct mail card solicitations in the U.S. As a result of massive solicitation volumes, for the past few years the company has grown new accounts much more rapidly than new balances. The eighth largest card issuer in the U.S. is now shifting its marketing strategy to emphasize the Capital One brand and aim upscale to attract customers that will help it grow its receivables.

Capital One Chairman and CEO Richard Fairbank told the American Banker that the new brand strategy will concentrate on the card's fixed 9.9% APR and its reward programs for airline travel. "Basically, we want to communicate what a good deal Capital One is," he remarked to analysts attending the 2001 Global Financial Services Conference sponsored by UBS Warburg in New York. He also hinted that the company may be planning to develop co-branding relationships with companies who sell upscale products.

Behind the shift in branding strategy is the company's plan to expand into product lines other than credit cards, such as automobile financing and installment loans. They also intend to expand internationally. Fairbank indicated that both product and global expansion will require the creation of a stronger brand identity that is separate from the Visa and MasterCard brands. Until this year, Capital One had been virtually unknown as a brand to consumers, having chosen to promote the Visa and MasterCard logos.

Credit risk exposure to subprime borrowers does not seem to be at the root of Capital One's re-targeting. With 30% of its $31.6 billion of managed loans already in the subprime end of the market and a chargeoff rate just below 4 percent (compared to 5.55 percent for the industry average), Capital One has apparently been hugely successful at picking up cardholders who perform well.