Mary Curran-Hackett - The Capital One Story: How the Upstart Financial Institution Charged Toward Market Leadership

2020 HarperCollins Leadership

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Published by HarperCollins Leadership, an imprint of HarperCollins Focus LLC.

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ISBN 978-1-4002-1872-1 (eBook)

ISBN 978-1-4002-1871-4 (HC)

Epub Edition March 2020 9781400218721

Library of Congress Control Number: 2020931342

Printed in the United States of America

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CONTENTS

AUTHORS NOTE

Capital One declined all interviews and participation in this venture. All interviews and quotes come directly from online presentations, news articles, books, case studies, as well as Capital Ones website, annual reports, and press releases.

Credit cards arent bankingtheyre information.

RICHARD FAIRBANK,

Founder and CEO, Capital One

I ts impossible to go a day without seeing or hearing mention of Capital One. Their witty, star-studded commercials and print ads are ubiquitous. Though relatively new to the banking and credit industry compared to their historic competitors, they have been steadily growing and edging out the competition for the past twenty-five years. Theyre growing so much they are now one of the top 10 credit issuers, keeping company with some of the most enduring banks in US history. Capital One is not just enduring but historic and groundbreaking as well. Its hard to imagine that such a new company could have anything in common with the legacy banks, but in fact, they do.

A Very Brief History of US Banking and Lending

Some names are synonymous with bankingBNY Mellon and JPMorgan Chase for example. Some with history. Some are synonymous with both. Enjoying a resurge in popularity thanks in large part to the smash hit Hamilton, founding fathers Aaron Burr and Alexander Hamilton are some such names. Though the two are well-known frenemies and helped shape our nation, what is little known, however, is that the two rivals are also the founders of two of the largest and longest-enduring US banks. While we tend to think of Big Banks as something unique to our age, they have been part of the fabric of American life since its inception.

Its All About the Hamiltons

One of the USs oldest banks, The Bank of New York, was founded by none other than Alexander Hamilton himself in 1784. Upon his return from serving in Congress, Hamilton returned to New York and saw a business opportunitycredit. Merchants in the growing city needed access to credit in order to finance their new business ventures. However, there was one segment of the business population Hamilton refused to lend tohis enemies, the Jeffersonian Republicanswhich essentially amounted to half of the merchants in New York.

Enter Hamiltons long-time rival, Aaron Burr. Not to be outdone, Aaron Burr, who had been outspokenly anti-Federalist and anti-credit, in a bold (and some might even argue devious) move reworded some language in a charter that had been created to build a private water company for New Yorkers. In the newly worded charter, Burr made a provision that the water company could accept deposits and make loans. In essence the Manhattan Water Co. was a bankor what became known as the Manhattan Bank. Burr could now lend to his peers who had been shut out previously by Hamilton and his Federalist friends. With this new influx in money and access, the entire political and financial landscape changed in America.

Some historians, like Robert E. Wright, author of One Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe, argues its the reason Jefferson was even elected president in 1800. With the new infusion of cash flow, he had access to otherwise inaccessible funds thanks to Burrs Manhattan Bank. Money playing a role in politics, it appears, is as old as America itself. Similarly, shutting people out of credit and discriminating against them (and finding ways to bypass discrimination) has been as well.

Though the times have certainly changed, banking and the rivalries among banks have remained largely the same. Hamiltons Bank of New York still survives today, though it is known as New York Mellon (BNY having merged with Mellon in 2006). Similarly, Burrs Manhattan bank survives as JPMorgan Chase, (having first merged with Chase and then JPMorgan in 2000). To this day, our founding fathers banks, JPMorgan Chase and Mellon endure and are on the Top 10 list of largest banks in the US. stock market crashes, an ensuing Depression, Democratic and Republican presidencies, a Civil War, two World Wars, countless other wars, mergers, acquisitions, and even Ponzi schemes. These old banks and the leaders that founded them, have been, for better or for worse, part of the continuing unfolding American story.

Capital Ones Origin Story

Among these top ten largest US banks (by assets), however, one bank stands out precisely because it hasnt shared in this rich and complex past. Though it is only twenty-five years old, Capital One is no less a part of the ever unfolding American storyand more accuratelyits future. Its origin story, ironically, comes about for reasons very similar to why the two oldest and largest began in the first place: The consumers need for access to credit and the founders of the banks desire to bypass discrimination.

Capital One, though fairly new, is linked intrinsically to both American spirit and history. Its founders also share many striking similarities to US bankings early founders. Fairbank, like Burr, is American-born, and Morris, like Hamilton, is an immigrant. When they founded Capital One, the two were young visionaries who saw consumer needs changing and were ready to seize the opportunity. Like Burr, they saw that only half of all Americans at the time had access to credit and they sought to democratize the process. Like Hamilton, they wanted to bring America into a modern era, where it could both prosper and grow and meet the demands of a changing socioeconomic, political, and rapidly developing landscape. But, unlike Burr and Hamilton, the two wont be meeting in a duel on a field in New Jersey anytime soon. To this day, they remain friends and leaders and in the banking and FinTech (the area of where financial services and digital technology meet) industries. Unlike any other large bank on the Top Ten List, Capital Ones founder still sits in the CEO chair and commands the vision of the bank itself.