Giving credit to do-it-yourself IT

Capital One uses IT in several unique ways to ensure it stays competitive in the credit card market. Julia Vowler reports

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."

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