Capital One uses IT in several unique ways to ensure it stays
competitive in the credit card market. Julia Vowler reports
Depending on how you approach it, IT can prove to be either a
rock around the corporate neck or an essential foundation on which
to build competitive advantage.
At US credit card company Capital One, the philosophy is
definitely the latter. IT is viewed as the key enabler to
differentiate the company in an extremely crowded and competitive
market. Again and again, IT is used to supply the critical unique
selling points that make Capital One different from its rivals.
The company's competitive positioning is founded on its
information-based strategy, which puts the use of IT right at the
heart both of Capital One's daily operations and, even more
importantly, its entire business strategy.
First of all, when the US company initially launched in the UK
in 1996, the priority was to get going, fast, so IT was outsourced
to the Bank of Scotland. Using someone else's credit card
processing system gave Capital One a fast start, but the company
wanted IT in-house because, says IT director Peter Knight,
in-sourcing allows much greater control, flexibility and speed of
response than outsourcing - and they mean competitive unique
selling points.
To begin with, operations-wise, the new, in-house credit card
processing system - the transactions, billing and so forth - is run
on a highly customised mainframe package which is not used by any
other credit card company in the UK.
"One store uses it for its store card," he says.
Surely all credit card processing systems are very much alike?
No, says Knight.
"People think a processing system is a commodity, but it isn't
really, not if you want to be creative."
The kind of creativity he has in mind that Capital One's unique
system can support is, for example, the ability to do balanced
transfers - luring customers from other credit card companies by
paying off their debts, and transferring them to Capital One. For a
while it was the only company doing this - now others are
following, recognising it as a powerful marketing tool.
"We invented this," says Knight.
One key IT unique selling point, he says, is the
front-endcreditscoring system. Capital One specifically does not
use industry credit scorecards, but keeps that risk in-house.
"We've developed a very flexible credit reference package which
uses far more data to make adecision [about
credit-worthiness],"says Knight. "We tap into other sources of data
that our competitors can't."
Doing your own credit scoring means that Capital One can be
something other than a me-too credit card clone and be more
specific about who it issues to.
But without a doubt, the most critical unique selling point
which IT confers on Capital One is the ability to know its
customers - and prospective customers - in huge detail.
"On top of the transaction processing systems are the management
information systems," says Knight. "For every transaction
processing system we have a sister [management information system]
all integrating with each other."
Out of all the sources of customer information - plus
third-party data from direct marketing companies and so on - comes
a huge data warehouse. Sitting in Oracle on Hewlett-Packard Unix
boxes, there are currently seven terabytes of data about the
company's customers and prospects.
The warehouse is key to Capital One's market positioning because
it enables the company to do what differentiates it markedly in the
credit card market, which is mass customisation. The company
produces literally hundreds of credit cards very specifically
targeted at segments of the population depending on their
lifestyles, interests - the company even does a card for anglers -
and ability to pay.
"Our unique selling point is mass customisation," confirms
Knight.
New cards are launched every month. Again, IT is critical to the
process. The model is test, learn, test - and finally launch.
"We start with a prototype product," says Knight.
This is devised with the aid of taking a database of the UK
population from a data bureau and then segment it against a
lifestyle list.
"We have an idea for a new credit card and create a solicitation
with a number of different products and ideas to see what they like
and which people like what, and why," says Knight. "All this
information goes into the MIS database."
"We try to be very sophisticated about understand customers'
requirements."
The Web, of course, is a very clear target for achieving unique
selling points.
"We haven't yet driven a lot of traffic online," says Knight.
"People can apply for a card online to our Web site, but UK law
still requires a signature before we can issue it."
"But we do a lot of customer listening on the Web. And by late
summer customers will be able to pay their credit card bills over
the Web."
Another current focus is fraud detection.
"There's a lot of development there," says Knight.
With so much criticism, carping and questioning about the
business value of IT, at Capital One there is no doubt at all that
one simple equation holds true - "No IT, no credit cards."