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Innovation Test for Capital One's Lynn Pike
BY KENNETH CLINE
Lynn Pike seeks to bring innovative leadership to Capital One?s banking unit despite challenging conditions.
|SYNOPSIS | Lynn Pike, the president of Capital One Financial Corp.?s banking unit, says she intends to imbue the bank with the parent company?s tradition of innovation. One method of doing that is by bringing Capital One talent into the banking?s marketing and product teams. She also says the bank will introduce a wider breadth of treasury management capability for small business and commercial customers. One hidden asset the bank will cultivate, she adds, is Capital One credit card customers who live within the bank?s geography in the Southeast and Northeast.
While most bankers give lip service to the need for innovation, the real test of their convictions comes when times are hard. It’s easy to invest in new processes and technology when the industry is strong and earnings are rising; it’s much harder when losses are mounting, stock valuations falling and the entire industry goes into cost-containment mode.
That’s the challenge facing McLean, Va.-based Capital One Financial Corp., which has long enjoyed a reputation as one of the industry’s most innovative and successful companies. As a monoline credit card company in the 1990s, Capital One’s Information Based Strategy (IBS) pioneered the use of scientific testing of marketing data to target individual customers rather than broad socio-economic groups. And that innovative tradition shone again last year, when Capital One introduced a co-branded debit card that enables it to issue cards to consumers who don’t possess a banking account with Capital One, potentially reshaping the debit card business.
The nation’s subprime mortgage and credit crisis, however, has begun to affect Capital One, as profits for 2007 fell 35% from the previous year due to mounting loan loss provisions and increasing credit card delinquencies. The company’s guidance for 2008 is to anticipate more trouble ahead, which increases the pressure on Lynn Pike, president of Capital One’s banking unit.
Pike was hired away from Charlotte-based Bank of America Corp. in March 2007 to run the two banks that Capital One had acquired in recent years: New Orleans-based Hibernia Corp. (2005) and Melville, N.Y.-based North Fork Bancorporation (2006). Her job will be to improve performance at the combined bank, which will have 13,000 employees and 725 branches across five states and rank 15th largest in the nation in deposits ($73 billion).
During a recent interview with BAI’s Banking Strategies, Pike declined to address Capital One’s current credit problems. But she did emphasize her intention to inject Capital One’s tradition of innovation into the banking unit. The fact that she will be facing strong industry headwinds as she goes about this task will render accomplishments in this area all that more notable.
Q: How do you intend to imbue Capital One's bank subsidiary with the parent company's innovative culture?
Pike: I see it happening in a couple of ways. First, I think that innovation will be one of the major threads that tie Capital One and the legacy banks and the banking segment together. It is the core of the company’s DNA and the bank is part of the company.
It may seem counter-intuitive to describe banks as “innovators,” but I would point out that North Fork earned the number three market share position in the most competitive market in the United States (metro New York), a real achievement for a small regional bank. North Fork was known for its innovations in customer segmentation, for example. Hibernia was also a regional player, with the lead market share in Louisiana. They understand the concept of innovation and creativity. All three of the companies have a level of innovation built into who they are as institutions.
Then there’s the fact that Capital One CEO Richard Fairbank is the kind of leader who expects innovation. He’ll really challenge us by testing the boundaries of our creativity balanced by sound business logic based on longer-term views of where the markets are going. I don’t like to just maintain the business status quo; I like to lead major transformations and change. So with Rich as a leader and with my own natural makeup, innovation will come more naturally.
I think the other piece we’re focusing on is cross-fertilizing the team. We’ve moved numerous legacy Capital One people into the bank, specifically into our product and marketing area. I think one of the natural places to innovate is in product. We’ve got some core talent on the team that participated in the non-traditional innovation that Capital One led in financial services along with two banks that found truly unique innovation approaches, such as North Fork’s serve-the-underserved middle market approach and Hibernia’s sweet spot segmentation approach, that will be incredibly helpful in continuing to drive innovation.
Q: What products would be likely to see innovation in the bank itself? Credit card, obviously, but beyond the credit card?
Pike: On the deposit product side, you’ll see a breadth of treasury management capability for small business and commercial customers, which will probably not feel natural for a bank of this size.
While the two legacy banks went at it in very different ways, we’ve got a great platform to build from with Capital One simply leveraging the untapped “best of the best” from Capital One, Hibernia and North Fork. So putting that all together, we’ll have niche products and services tailored uniquely to some specific segments for commercial and small business customers.
As it relates to the consumer, we’re going to figure out how we leverage all of our channels—branches, call centers, online and our phone-based Direct Bank. Just based on the heritage of Capital One products, we believe there will be product innovations across deposits and credit and in bundling the products as well. For instance, we just launched a rewards money market account, so that I think marks a beginning for us.
Q: Capital One had a national footprint, but Hibernia and North Fork were regional banks. How do you combine the local focus relationship banking with the national footprint strategy? How do you bring those two together?
Pike: Leverage. The heritage of Capital One and its IBS capability will be imbedded in the work that we do in the bank, including how we make product offers, how we market to customers, etc.
It also involves legacy Capital One customers who live in the bank footprint. For example, there are two and a half million of them in the New York metropolitan statistical area. That’s more customers than the bank has. So we’ll work to leverage not only the products that Capital One can bring to bear that didn’t exist in the North Fork Bank franchise, but we’ll also leverage the customer base that was legacy Capital One.
Looking at the former Hibernia footprint, there are a little over two million legacy Capital One customers in Texas and about 800,000 in Louisiana. That’s pretty substantial. In Texas and Louisiana today, the Hibernia name has come down and “Capital One Bank” is the brand our customers know us by. That’s not yet true with North Fork; that will happen this spring.
In the last quarter, we had 450,000 legacy Capital One credit card customers come into our branches in Texas and Louisiana to make their payments, whether it was for a credit card, auto or installment loan. So that’s a real opportunity for us, enabling us to interact with these customers face-to-face where before we only interfaced with them through an alternative channel such as mail or online.
Altogether, Capital One has an imbedded customer base of 50 million accounts. I believe there are only one or two other companies in the United States that have more customers than Capital One.
The other opportunity is to cross-sell to the bank customer base. Previously, the banks didn’t have the breadth of product offering that we’re going to get now with the combination of the two banks and Capital One. We turned that spigot on as soon as we put the platforms together.
We’ve got 750 branches that are very community-based, with teams that are incredibly connected to their communities. I believe that supporting and nurturing that community connection is paramount. We will enable them with technology, product offerings and market support and, more importantly, empower them in their interactions day-to-day to truly make the difference.
Local community banks can compete fiercely. What they lack is some of the technology and information skills that some of the bigger institutions have and we’ve got both. So, as we continue to integrate and “connect the pipes,” we can provide a powerful combination that will give us better solutions. Empowering the front line to take advantage of that information is a unique opportunity so you can really compete one customer interaction at a time.
Of course, it means change for everybody. It means change for the legacy Capital One people, for the Hibernia and North Fork teams and the new banking leaders I’ve brought into the company. But if we stay focused on what the future represents, I know we can all get down the path together—because we believe that the end state is the right place.
Q: How does this challenge compare to others you’ve faced in your career?
Pike: I would say it’s the most complex because it’s essentially the union of three companies. I’ve never been part of putting together more than two companies, although those two (Bank of America and Fleet Boston) were large. The fact that the infrastructures in the community banks were probably not as advanced as you’d see in a top 10 institution adds another dimension of complexity.
And then, there’s the nature of the cultures of the institutions. Although there are certainly many common threads, there are some unique differences. And we’ll have choices to make as we put the companies together.
So it’s complex but also energizing. The possibilities are endless—to recast financial services to mean something different. I have been in banks that talk about this but they start down the path and somehow either never really follow through or, more often, lose their way.
You don’t get to do this very often in your career—to take all this great raw material and build something as differentiating as this can be.
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