Richard Fairbank: Capital One Is Poised to Be the Biggest Virtual Bank
The CEO explains how his company revolutionized the credit card world, and is still cooking up ways to disrupt the banking industry.
If you’ve ever opened the mail to find a preapproved credit offer with a low ‘teaser rate” interest and seamless transfer of balances from higher-cost cards, thank Richard Fairbank, cofounder, chairman, and chief executive officer of credit card giant Capital One.
The Stanford MBA ‘81 pioneered these now-common products that revolutionized the credit card world. And he’s still cooking up ways to turn old-school industries on their heads.
After a move into retail banking, the diversified financial services giant is now the eighth-largest U.S. bank based on domestic deposits and at year-end 2010 reported $122 billion in deposits and nearly 28,000 employees. The company runs about 1,000 Capital One Bank branches, mostly in Eastern states, and the firm’s catchy “What’s in Your Wallet?” advertisement for its credit card is among the most recognizable in the industry.
But that’s not enough for Fairbank who has his sights set on new business conquests.
In June, the Virginia-based firm announced it is poised to become a major player in online banking with its proposed purchase of ING’s U. S.-based unit. The $9 billion cash and stock deal would bring 7.7 million ING Direct customers into the Capital One fold, transforming Capital One into the nation’s largest banking network.
Fairbank told the story of how Capital One got its start and what’s ahead during a capacity-crowd “View From The Top” speech at Stanford GSB on Oct. 4.
After graduating from Stanford with a bachelor’s degree in economics in 1972 and a desire to work with children, he founded a training school for champion swimmers and then was recruited away to run a community recreation agency. “I was a little reluctant to get away from the kids, but that’s how I got into management,” he explained. “It’s funny how fate happens and one thing leads to the next.”
However, his entrepreneurial desire persisted, leading him to the business school to learn the practical knowledge he needed to go on to bigger business endeavors. “I knew exactly what I wanted to do, which was to start and build a company,” he said. “But I had a bit of a problem; I had no money, I had no business experience, and no business idea.”
After graduating, he spent seven years as a consultant with Strategic Planning Associates, which merged and became Mercer Management Consulting, now part of the Oliver Wyman Group.
What Fairbank learned about credit cards paved the way for Capital One.
“I was struck by the fact [that] this was an industry that was run classically by traditional banks.” Their products, he said, were uniform “one-size-fits-all” cards with 19.8% interest rates and $20 annual fees. And he was astonished to see that, while companies had wide access to consumer data, “they didn’t use it, they didn’t capture it, and they certainly didn’t save it.”
He devised an information-based strategy to uncover pockets of profitability those competitors had missed. Originally funded by Virginia’s Signet Bank, Signet spun off the enterprise in 1994, and Fairbank became its CEO.
Today, he sees the opportunity with retail banking, another industry he intends to redefine.
“Did you know there are more retail branch banks than there are gas stations in the United States?” he said. “I know why we need gas stations. You can’t mail order gasoline. But I really don’t think we need a retail bank on every corner” given the popularity of online banking services.
Along the way he’s also learned that the most important part of corporate culture is not to expect the boss to be on top, dictating solutions down to employees. He prefers a culture that’s more like that of a university and its “competition of ideas,” where people feel empowered to dream up new solutions.
He cautioned the MBA students in the audience against simply chasing success, urging them to pursue their dreams instead.
After all, he said, “When you give up chasing success and instead chase the dream, you get liberated and you’re able to define success on your own terms.”
Fairbank said his inspiration for life and corporate values came from his parents, who were both physicists.
He said his mother broke the gender barrier during World War II, working “alongside 1,800 men” at the Massachusetts Institute of Technology’s radiation laboratory.
His father - from a family that lost everything during the Great Depression - deferred college to support the family by selling silk hosiery door to door. Eventually, William Fairbank Sr. became a physics professor at Stanford.
“My father was the most optimistic person I’ve ever known,” Fairbank said. “He never feared failure, and he had this wonderful confidence and humility about him. He was willing to take on some of the toughest, most unsolved, most haunting puzzles in physics.”
Even though his father died in 1989, Fairbank said, “I feel his presence, his passion, his optimism, every day as I’ve built Capital One.” After 23 years as an innovator, Fairbanks believes Capital One still has plenty of ideas and moxie left.
“The most entrepreneurial opportunities,” he said, “are the ones that are in front of us.”
The “View From The Top” speaker series is sponsored by the school’s Center for Leadership Development and Research.
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