CAPITAL ONE CASE STUDY

Capital One Case study



Capital One Case study

Key Environmental Forces

The key risk factors for Capital One Finance are the competitive and regulatory environments. The credit card industry appears to be nearly saturated, particularly in the prime and superprime markets.  This is because the recession had a disproportionately adverse impact on the sub-prime segments forcing many lenders to tighten credit controls and focus on super-prime customers. In the near-term this trend is expected to continue which will keep intense competitive pressure on Capital One's target market of super-prime borrowers. However, should the economic recovery progress as expected, it is likely that this saturation will subside to normal levels. Nonetheless, competition in the consumer lending industry is expected to remain very high maintaining current pressure on interest margins.

Capital One has become a strong leader in the financial world since its start as a public credit card company in 1994 through with strategic growth and diversification. I feel the key environmental forces that will have immediate strategic implications for Capital One are its opportunities and threats.

Capital One seized the opportunity to grow domestically as well as internationally. Domestically, Capital One was able to diversify by branching out in to areas such as branching out in other areas of the banking industry. Hitt, Ireland, and Hoskisson, (2009) reported this about Capital One, “it provides a gamut of financial services through its main subsidiaries-Capital One Bank, Capital One F.S.B., (which offers consumer and commercial lending and consumer deposit products), and Capital One Auto Finance Inc. (COAF)”. (p. 65). In addition, Capital went international with the acquisition of Hfs Group.

Capital One is not without threats though because with a large portion of its business in the credit card business. Capital One has a segment that they lend to sub-prime lenders, which is a huge risk. I feel in our current economic state where the economy has fallen since this case was written proves my concern for the sub-prime lending. Currently, the unemployment rate has sky-rocketed, which I'm sure has increased the number of people that have defaulted on their credit card payments or even filed bankruptcy. This sub-prime market is a huge gamble for Capital One.

Capabilities And Weaknesses Within Capital One

I feel that Capital One capabilities lie largely in Capital One diversity in the banking industry. In addition, I feel that Capital One use of the credit score rating, which supports the Information-Based Strategy (IBS) which allows Capital One to judge credit card applicants and charge interest according to their level of risk is a great capability to evaluate its borrowers. I think it has assisted Capital One in keeping a low charge-off rate. (Hitt, et. al., 2009).  I feel that this system has also, attributed to Capital One's weakness. By lending to sub-prime or higher risk customers this is a huge risk for Capital One. I feel that the current economy does not support.

One of Capital Ones internal weaknesses is its annual expenditures on advertising fees in comparison to the company's major ...