- The Washington Times - Monday, February 5, 2001

A single company sends out nearly one-third of the credit card offers Americans get in their mailboxes each year.

More than 1 billion tailor-made solicitations come from Falls Church-based Capital One Financial Corp., each offer's interest rates and perks targeted to consumers with particular credit histories and tastes.

Capital One CEO Richard Fairbank talks about "mass-customized marketing" with near-religious fervor. His company doesn't just have goals, it has "dreams" or "visions."

Mr. Fairbank, 50, lacks the flamboyance of evangelists. Tall and blond, his nervous energy would seem out of place behind the pulpit. But his lingo and the gleam in his eye are reminiscent of a spiritual leader.

"I think if I would've set out to be the CEO of a Fortune 500 company I never would've gotten there … So much of [my job] relates to the pursuit of this audacious dream," he says.

Capital One's "information-based strategy" is "at the forefront of where the whole world of marketing is going to evolve," he says.

The company has tried to make risk prediction a fine science by collecting extensive information about its customers and potential customers, everything from hobbies to credit history.

Capital One also relies heavily on testing. It conducted 46,000 tests last year to figure out how certain groups respond to different variables, from credit lines to fonts on envelopes.

Analysts, normally even-keeled about the companies they cover, seem to have been swayed by Mr. Fairbank's message and the company's model, even echoing the religious language.

"You become a believer over time when you see them remain as nimble as they are," says David West, director of research at Davenport & Co. in Richmond. He adds that the company has "an unusual predictive ability."

Analyst David Sochol of Legg Mason Wood Walker in Baltimore says analyst meetings for Capital One, led by Mr. Fairbank and President and Chief Operating Officer Nigel Morris, can take on a "revivalist" tone.

"They are simply smarter than almost any management team that you will come in contact with," he says.

The analysts' opinions of the company, and its stock price, have withstood a factor that has hit some other credit card companies hard a customer lawsuit. Capital One was sued in January by customers who said the firm was designating weekends and holidays as payment due dates, but would not open mail on those days, making payments late.

Mr. Fairbank says the allegations are false.

Scientific, database marketing seems like a no-brainer in 2001. But back in the late-1980s, when Mr. Fairbank and Mr. Morris met as consultants and developed their model, they had trouble finding it a home. At the time, every cardholder had an annual percentage rate of 19.8, with low-risk customers paying the relatively high rate to subsidize high-risk customers.

Their goal became to better predict risk and "democratize" credit, or be able to offer it to a wide spectrum of consumers, Mr. Fairbank says. They shopped their concept around to dozens of banks, but no company bit until they found Signet Bank in Richmond.

In 1988, the two men joined the bank's small credit card division. In 1991, they came up with another idea that changed the whole credit card industry balance transfers which allowed customers to move their balance from one credit card to another with a lower rate.

Three years later, Capital One spun off from Signet, went public, and has grown steadily ever since. The company's earnings per share have more than doubled in the past two years, and it added 4.3 million new accounts in the fourth quarter of 2000 alone. Now its total customer base is 33 million.

Though credit cards constitute the vast majority of Capital One's business, the company has moved its information-based strategy to auto finance, money market products and wireless phones. The only black spot on the company's record, analysts say, is a failed bid to create its own mobile phone unit. It is now testing marketing for Sprint PCS.

Mr. Fairbank says when the company went public, he and Mr. Morris set twin goals of 20 percent earnings per share and 20 percent return on equity growth each year. Capital One has met those numbers for the last six years.

"There's only a handful of companies that have delivered the type of growth and profitability at the levels they've done it as consistently as they've done it," analyst Mr. Sochol says.

Mr. Fairbank says he has so much faith in his company that he has opted to receive only stock options, without salary or benefits, for the past three and a half years. The CEO of a firm that netted $469 million last year did not bring home a dime in real cash.

Four years ago, he approached the company's compensation committee with fears that he and the management team wouldn't continue to operate in an entrepreneurial enough manner.

Under the plan the committee developed, the company's senior executives traded in all or part of their salaries for stock options based on Capital One's performance. Last week, the stock was trading at around $62, about 50 percent higher than this time last year.

According to Capital One's 2000 proxy statement, Mr. Fairbank received 1.1 million stock options in 1999, bringing his total to about 10 million options. He says he'll cash them in as they expire.

In the meantime, he lives on savings, though he's not scratching out an existence he has enough to drive a Mercedes and support his six children.

Mr. Fairbank is as idealistic about his company's practices as its performance.

The credit card industry has come under attack from Congress and consumer groups for targeting people who do not understand the implications of having a credit card.

Mr. Fairbank claims his company approaches only those who can afford a card.

"We're doing this to people who can pay us back," he says. "I think there's a big social responsibility for credit card companies."

He says the company minimizes risk because of its elaborate testing procedures, and is able to predict customer behaviors.

The company has also tried to predict the path the economy will take. Analysts have estimated that credit card loss rates will rise this year as the economy worsens.

Mr. Fairbank says his company has kept credit limits low, among other measures, to protect against recession.

"To be safe, for years we have assumed that a recession starts tomorrow," he says. "If you tighten up by the time the recession comes, it's way too late."

Aside from that one cautionary note, Mr. Fairbank appears to have plunged forward on most of his endeavors, and in person exudes an upbeat, motivated air.

A few years ago, he decided he would be a "future golf fanatic," even though he had never picked up a club. He waited until his two oldest boys were old enough to play, at 12 and 10, and the trio took to the green.

He's trying to take his 11 or 12 handicap down to zero. All of the screen savers in his office show a computer-generated amalgam of famous golfers' swings "the perfect swing" Mr. Fairbank says.

His six children range from six-month-old twins to an 18-year-old, and he has thrown himself into whatever hobbies they have adopted, coaching soccer and taking up horseback riding.

"When I come home, I turn Capital One off in my mind," he says, which is hard to believe from someone so passionate about work.

When his 5-year-old runs to greet him at his McLean home when he gets home from the office, "she doesn't ask what the stock price is," he says.


Name: Richard D. Fairbank, chairman and chief executive officer, Capital One Financial Corp.

Age: 50

Native of: Bay Area, California

Education: Degree in economics, Stanford University; MBA, Stanford Graduate School of Business

Resume: Founded Capital One with Nigel Morris in 1988 as part of Signet Bank; spun the company off and took it public in 1994. Previously vice president and head of the banking practice at Strategic Planning Associates (now Mercer Management Consulting)

Family: Wife and six children, ages 6 months to 18 years

What I drive: Mercedes

What I'm reading: "Swing Like a Pro," Dr. Ralph Mann

Last movie I saw: "Thirteen Days"

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