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Card Issuer Profile: Capital One

Description:    Capital One has grown from being an innovative and balance-chasing monoline card issuer in the
                US to a fully fledged financial services provider with an international presence. This profile focuses
                on Capital Ones card operations, highlighting the product strategies and market positioning behind
                its development, as well as its outlook for the future.

                Key reasons to purchase this title

                - Gain a detailed understanding of Capital Ones strategy and approach in the card market, and
                apply the lessons from this to your business.

                - Learn how this strategy positions Capital One for the future and where its biggest opportunities
                may lie.

                - Compare Capital One against other leading global issuers using The unique Competitor

Contents:       Overview 1
                Catalyst 1
                Summary 1

                Capital One 5
                Key findings 5
                Company overview 5
                Background 5
                Ownership and Management 7
                Capital One board of directors 7
                Employees 7
                Management values 8
                Company structure 8
                Geographic coverage 9
                2009: Capital One acquires Chevy Chase Bank 10
                2008: Capital One integrates and rebrands North Fork Bank 10
                2007: Capital One and NetSpend terminated acquisition agreement but announced a strategic
                partnership 11

                Strategic focus 11
                Capital One has transformed itself from a monoline to a fully-fledged financial services provider 11
                In its card issuing business Capital One has refocused on transactors as opposed to revolvers 12
                Focusing on balance transfer customers has a high cost 12
                Like other major issuers Capital One has seen its charge-off rates rise following the economic
                downturn 13
                Diversifying its portfolio has seen the value of transactions grow much faster than the value of
                balances outstanding 15
                In the UK, Capital Ones strategy has focused on attracting new cardholders by offering competitive
                balance transfer offers 16
                In the UK, Capital One focuses primarily on cardholders who revolve a balance 16
                Capital One has been trying to establish itself as a financial services provider by offering savings
                products 16
                In Canada, Capital Ones strategy involves offering a range of cards for different types of consumer
                Some of the cards now being offered suggest Capital One is heavily adopting its US strategy in
                Canada 17
                Card statistics 17
Number of cards 17
Balances outstanding 18

Key financials 19
Profit and loss account 19
Despite significant credit pressures, the US Card business delivered $1.0 billion in profit 21
Capital One was forced to seek US Treasury TARP funds 21

Balance sheet 21
US card product offering 22
In the US, Capital One has a wide range of cards 23
Capital One has a No Hassle loyalty program in the US 24
Cards that are part of the No Hassle Cash program earn cashback 25
A variation of the program is the No Hassle Miles program 25
The high end cards in the US have added services and benefits for the cardholder 25
The interactive Card Lab online tool allows customers to tailor their products 26
Capital One offers a range of exclusive incentives to its cardholders in the US 27
Capital One has an extensive product offering for business clients that mirrors its consumer cards
UK and Canada card product offering 30
In the UK Capital One has a far more limited range of credit cards 30
In the UK, cardholders can select the appearance of their Capital One card 31
In Canada Capital Ones range of cards is extensive and demonstrates the same strategy as in the
US 31
In Canada, two of Capital Ones cards track the base rate 33

Company outlook 33
Capital Ones acquisitions have potentially placed it in a stronger position to survive the downturn
Capital One will continue to focus on building and maintaining deposit-led relationships with
customers... 33
However, it has no intention of moving entirely away from its credit card business model 33
Seeking to attract transactors may have its pitfalls as a reduction in interchange fees is likely 34
Despite the downturn Capital One is seeking to boost its businesses through acquisition 34
Overseas it seems that Capital One will continue to grow in Canada and struggle in the UK 34
Acquisition of another player in the UK seems unlikely 34
Although the outlook is more positive, achieving scale in Canada will be difficult 35
Expansion to emerging markets is a possibility and is becoming increasingly important 35
Capital One has yet to enter the co-branding arena and may now be too late 36

Appendix 40
Definitions of terms used in this report 40
Charge card 40
Co-branded card 40
Commercial card 40
Credit card 40
Premium cards 40
Data relating to the graphics in this profile 41

Methodology 42
Further reading 42
Ask the analyst 44
Disclaimer 44

List of Tables
Table 1: Capital One board of directors and key employees, 2008 7
Table 2: Capital Ones classification of credit ratings in the US 23
Table 3: Examples of Capital Ones card offering in the US, 2009 24
Table 4: Capital One business card offering in the US, 2009 30
Table 5: Capital One credit cards in the UK, 2009 31
Table 6: Capital One credit cards available in Canada, 2009 32
Table 7: Scorecard logic, part one 38
Table 8: Scorecard logic, part two 39
            Table   9: Capital Ones income statement, 2004-07 41
            Table   10: Capital Ones balance sheet, 2003-07 41
            Table   11: Capital Ones cards in issue, 2003-07 41
            Table   12: Capital Ones credit card outstanding, 2003-07 42
            Table   13: Capital Ones US card business transaction values and balances outstanding, 2003-07 42
            Table   14: Current relevant publications, 2008-09 43
            Table   15: Future relevant publications, 2009 44

            List of Figures
            Figure 1: Capital One has evolved from a monoline issuer to a fully fledged financial services
            supplier between 1995 and 2007 6
            Figure 2: Capital Ones business structure is organized into two main areas, 2009 9
            Figure 3: Capital One has a limited global presence, 2009 10
            Figure 4: The Capital One business has diversified, 1999-2006 12
            Figure 5: Capital Ones US Card segment charge-off and delinquency rates have risen, Q2 2007-Q4
            2008 14
            Figure 6: Transaction values have grown more quickly than outstandings, Capital One, 2003-07 15
            Figure 7: Most of Capital Ones cards are in issue in the United States, 2003-07 18
            Figure 8: Outstandings in the US have declined in 2007, 2003-07 19
            Figure 9: Capital One made a loss of $46 million in 2008, 2004-08 20
            Figure 10: Capital Ones balance sheet has grown with the acquisitions of Hibernia and North Fork,
            2003-07 22
            Figure 11: Capital Ones reward programs are marketed for No Hassle rewards, 2009 25
            Figure 12: Capital One Card Lab portal, 2009 27
            Figure 13: Capital One Saving Zone provides its cardholders with exclusive offers on items bought
            online, 2009 28
            Figure 14: Capital One cardholders in the UK can choose the appearance of their credit card 31
            Figure 15: Datamonitor Competitor Benchmark, Capital One, 2009 37

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