How Capital One Makes Its Profits

Most of the biggest US banks have a long history and have managed to stay in place since their beginnings. In fact, each of the 4 largest banks by market capitalization is over a century old. Wells Fargo (WFC) was founded in 1852 and Citigroup (C) in 1812. JPMorgan Chase (JPM) traces its origins to 1799. Financial Bank of America (BAC), the puppy of the quartet, only dates back to 1904. Understanding all this raises a necessary question. How did Capital One (COF) grow enough to take its place alongside established corporate titans?

Key points to remember

  • Capital One started as a bank card company in 1994 before expanding into lending and retail banking.
  • The financial institution has three divisions, namely Bank Cards, Customer Banking and Business Banking.
  • Bank cards account for more than 41% of Capital One’s revenue.

Capital One: A Temporary Historical Past

Capital One will not be among the top five banks in the country, but it is a family title. The bank relies heavily on advertising to advertise its banking and bank card products, so this would not be shocking to those who have seen at least one of its advertisements on television.

The financial institution was based in 1994 in Richmond, Virginia, solely as a credit card company. 4 years later, Capital One expanded to integrate lending and added retail banking to the combo in 2005. Over its history, Capital One has acquired a slew of other money companies to strengthen its presence and secure its place among the top 15 banks in the US market, including National Bank Hibernia, North Fork Bank and Chevy. Chase financial institution.

Capital One has three reporting segments. In descending order of measurement, these include:

  • Bank cards : Capital One is one of the largest credit card companies, issuing playing cards to customers in Canada, the United Kingdom and the United States. The company has Visa and Mastercard card choices, many of which are rewards cards.
  • Banking services for buyers: This division regularly offers individuals and small and medium-sized businesses banking services such as checking and financial savings accounts, loans, mortgages and cash market accounts. This unit also includes Capital One 360, its spot market.
  • Corporate banking : This phase serves commercial buyers with banks, loans, real estate and financing providers.


Capital One reported total internet revenue of $30.4 billion for the 12-month fiscal year 2021. This is an increase from the previous 12 months when the company brought in $28.5 billion, largely due to the international pandemic. The bills Capital One has spent to earn this interest are also minimal. Interest-free bills exceeded $15.8 billion in 2021, confirming the fact that bank cards are extremely useful. All the promotion, promotion and publicity that Capital One undertakes pales in comparison to the amount of money the company makes from these small but very effective little playing cards. They contribute over 41% of the company’s business.

Small from the 90s

As mentioned above, Capital One began its impartial life as the credit card operator of a larger financial institution, simply because the American penchant for immediate gratification came into its own. For those who think that people now have a hard time understanding the concepts of minimum fees and annual prorated fees (APR), you must have seen the landscape again when bank cards came into their own.

Capital One has used some pretty revolutionary methods to capture market share. Although they seemed alien at the time and hardly worth mentioning now, they were vital. Allowing cardholders to design their playing cards or incorporate the branding of their football team or school gave them a means of satisfaction that resulted in more frequent spending. This is something that a MasterCard (MA) or Visa (V) brand simply cannot accomplish.

Capital One will consider whether or not you are pre-qualified for 5 of its rewards cards: Savor, SavorOne, Quicksilver, Enterprise or VentureOne.

Not just plastic

The buy bank remains a complement to Capital One’s bank card business, albeit a sizeable one. The phase accounted for $7.38 billion in revenue in 2021, a reasonably large amount in absolute terms. Like many large corporations and banks, Capital One seems to be approaching its limits. For that, you can blame – or credit, because it was – the growing number of non-banking and other non-traditional money companies as well as the era of PayPal (PYPL) lenders. These companies do not have physical locations and supply their suppliers online or through their mobile apps. This gives them an advantage over banks like Capital One. Since they don’t have a number of the prices of a standard monetary establishment, they will provide additional fees and incentives to their buyers.

However Plastic Nevertheless

When interest rates drop, as they often do, how does a credit card issuer generate revenue? The fees are only a baseline for lenders. As of August 9, 2022, Jerome Powell, the hawkish chairman of the Federal Reserve, has raised charges 4 times this year. If Powell continues to raise fares, an economist would expect Capital One and its opponents to comply. Fortuitously for Capital One, its outlook does not assume that means.

The back line

Capital One can be a separate segment company if only people saw bank cards for what they are – an addiction to immediate gratification rather than a convenient option for delaying ongoing purchases until the end of the month. If it’s not an area of ​​focus, then it’s actually not a multi-billion dollar powerhouse. Fortuitously for Capital One merchants, the company’s penchant for analyzed and personalized offers continues to set it apart from most of its opponents.

Capital One may seem like a mundane product, but these playing cards are something. Each bank card is a fragile instrument, perfectly tuned to withdraw as much money as possible from each cardholder. As long as cardholders remain prepared contributors to this one-sided deal, Capital One should only continue to grow.