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How does Capital One achieve profitability?

Capital One Profitability:

Before talking about Capital One take a look at the banking industry. The banking industry is a somewhat static business with few moving parts and visible technological advances, at least compared to the oil or computer industry. It is no coincidence that most of the largest banks in the United States are banks that started early and have managed to stick to it since then.

According to market value, each of the four major banks has a history of more than a century. Wells Fargo&Co. (WFC) was established in 1852 and Citigroup (C) was established in 1812. JPMorgan Chase (JPM) dates back to 1799. Bank of America (BAC), a quartet of puppies, dates back only to 1904.

This raises an important question: How did Capital One Financial Corp. (COF), which was founded in 1994, develop rapidly to work with the industry’s leading giants?

Children Of The 90s:

Capital One began to live independently and became a capital one credit card operator for a big bank, just as Americans tend to be satisfied instantly. If you think that people in 2018 have difficulty understanding the concepts of “minimum payment” and “annual percentage rate“.

Then you should have seen the scenery when credit cards start to enter themselves. Some of the ways Capital One uses to grab market share don’t seem to matter, and it’s hardly worth mentioning now, but they are crucial.

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Moving is as simple as designing cards for cardholders, or including their football team or university logo, giving cardholders a sense of pride that translates into more frequent spending. This is just a card that only has the MasterCard Inc. (MA) or Visa Inc. (V) logo.

Capital One has three reporting divisions. Sorted by size in descending order, including capital one credit card, Capitan one consumer banking, and capital one commercial banking. Although the company is almost exclusively used to expand consumer credit, Capital One can also lend money to mortgages or businesses.

In the fiscal year 2017, Capital One’s total net income was $27.2 billion. This number sounds impressive and this is correct. Last year, the company made a net profit of $25.5 billion. Capital One also has very little to spend on this interest.

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The non-interest expense for 2017 was less than $14.2 billion, which supported the fact that credit cards were very profitable. All the ubiquitous promotions, advertising, and marketing that Capital One takes are less meaningful than the company’s gains from those small but powerful small cards. They account for 62.4% of the company’s revenue and 60.9% of revenue.

Not Just Plastic:

Consumer banking is still an adjunct to Capital One’s credit card business, albeit substantial. The department’s revenue last year was $2.26 billion, which is a huge absolute value. Like many big companies and banks, Capital One seems to be approaching its limits.

To this end, you can blame (or credit) the growing number of non-banks and other non-traditional financial companies, including the PayPal Holdings Inc. (PYPL) generation of lenders.

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But Plastic Still:

How do credit card issuers make money because of the low-interest rate of the Fed? The Fed rate is only the benchmark for the lender. Since taking over in February 2017, hawkish Fed Chairman Jerome Powell has raised interest rates three times.

If Powell continues to raise interest rates, economists may expect Capital One and its competitors to follow suit. Fortunately for Capital One, its customers don’t think so.

Capital One Bottom Line:

It will become a niche company, and if only people see their credit cards: instant gratification of addiction, rather than a convenient way to postpone today’s purchase until the end of the month.

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If it is not a niche, it is certainly not a $41.5 billion power. Fortunately for Capital One investors, the company’s preference for personalized pricing for analysis continues to distinguish it from most competitors.

Capital One may seem to offer a generic product, but these cards are not. Each credit card is a beautiful tool that is precisely tuned to get as much money as possible from each cardholder.

As long as the cardholder is still willing to participate in this unilateral event, Capital One Banking should only continue to grow.

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