How Capital One Makes its Profits

Most of the biggest banks in the United States have a long history and have managed to stay since their beginnings. In fact, each of the four largest banks by market capitalization more than a century old. Wells Fargo (WFC) was founded in 1852, and Citigroup (VS) in 1812. JPMorgan Chase (JPM) traces its origins to 1799. Bank of America (BAC), the puppy of the quartet, only dates from 1904. Knowing all of this raises an important question. How did you Capital one (COF) grow enough to take its place alongside the established titans of the industry?

Key points to remember

  • Capital One started as a credit card company in 1994 before expanding into lending and retail banking.
  • The bank has three divisions, namely credit cards, retail banking and commercial banking.
  • Credit cards account for more than 41% of Capital One’s profits.

Capital One: A Brief History

Capital One may not be among the top five banks in the country, but it is a household name. The bank relies heavily on marketing promote its banking business and credit card products, so it wouldn’t be surprising if you’ve seen at least one of his commercials on TV.

The bank was founded in 1994 in Richmond, Virginia solely as a credit card company. Four years later, Capital One expanded to include loans and added retail banking to the mix in 2005. Over its history, Capital One has acquired a series of other financial companies to strengthen its presence and secure its place among the top 15 banks in the United States. market including Hibernia National Bank, North Fork Bank and Chevy Chase Bank.

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

  • Credit card: Capital One is one of the largest credit card companies, issuing cards to consumers in Canada, the United Kingdom and the United States. The company has Visa and MasterCard options, many of which are rewards cards.
  • Retail banking: This division provides individuals and small and medium-sized businesses with day-to-day banking services such as checking accounts and savings accountsloans, mortgages and Money Market accounts. This unit also includes Capital One 360— its money market offer.
  • The Commercial Bank: This segment serves commercial customers with banking, credit, immovableand investment services.


Capital One reported total net income of $30.4 billion for 2021 fiscal year. That’s an increase from the previous year, when the company brought in $28.5 billion, largely due to the global pandemic. The expenses Capital One has spent to earn this interest are also minimal. Non-interest spending was over $15.8 billion in 2021, confirming the fact that credit cards are incredibly profitable. All the promotion, advertising and marketing undertaken by Capital One pales in comparison to the money the company makes from these small but powerful little cards. They contribute to more than 41% of the company’s activity.

90s kid

As mentioned above, Capital One began its independent life as a major bank’s credit card operator, just as America’s penchant for instant gratification was taking off. If you think people now have a hard time understanding the concepts of minimum payment and annual percentage rate (APR), you should have seen the landscape back when credit cards came into their own.

Capital One has used quite innovative ways to capture market share. Although they seemed alien then and hardly worth mentioning now, they were critical. Allowing cardholders to design their cards or include their football team or college logo gave them a sense of pride that translated into more frequent spending. That’s something a MasterCard (MY) or Visa (V) logo simply could not accomplish.

Capital One will consider whether you are pre-qualified for five of its rewards cards: Savor, SavorOne, Quicksilver, Venture or VentureOne.

Not just plastic

Consumer banking remains a complement to Capital One’s credit card business, although important. The segment accounted for $7.38 billion in revenue in 2021, a pretty large amount in absolute terms. Like many large companies and banks, Capital One seems to be reaching its limits. For that, you can blame – or credit, so to speak – the growing number of non-banking and non-traditional financial companies, including PayPal (PYPL) generation of lenders. These companies do not have brick and mortar locations and offer their services online or through their mobile apps. This gives them an edge over banks like Capital One. Since they don’t have to bear some of the costs of a Financial institutionthey can offer more lucrative rates and incentives to their customers.

But still plastic

When interest rates drop, as they have so many times, how does a credit card issuer make money? The rates represent only a reference base for the lenders. Since August 9, 2022, Jerome Powell, the falcon president of the Federal Reservehas raised its rates four times this year. If Powell continues to raise rates, an economist might expect Capital One and its competitors to follow suit. Luckily for Capital One, its customers don’t think that way.

The essential

Capital One would be a niche company if only people saw credit cards for what they are: an addiction to instant gratification rather than a convenient way to defer purchases from today to the end of the month. If it’s not a niche, then definitely not a multi-billion dollar powerhouse. Luckily for Capital One investors, the company’s penchant for analyzed and personalized offerings continues to set it apart from most competitors.

Capital One may seem like a mundane product, but these cards are anything but. Every credit card is a delicate instrument, fine-tuned to get the most money out of every cardholder. As long as cardholders remain willing participants in this one-sided deal, Capital One should only continue to grow.

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