Capital One Financial (NYSE:COF) is investing in its payments network, premium card offerings and technology while maintaining flexibility to return capital to shareholders, Chief Financial Officer Andrew Young said at a conference.
Young also said the company has blocked artificial intelligence agents from operating within Capital One for now, citing concerns about fraud, data loss and other risks as the technology develops.
“We want to make sure that those loose ends are tied up so that we can ensure, again, that we can protect customers as these capabilities very quickly evolve,” Young said. He added that Capital One is developing its capabilities internally and sees potential benefits from adapting to new customer preferences.
Consumer Credit and Marketing
Young described consumer credit conditions as strong, pointing to stable delinquencies, improving payment rates and charge-offs that he said had been stable to slightly better in recent months. He said employment and wages are important indicators because they influence consumers’ ability to pay.
Capital One’s credit performance reflects several factors, Young said, including a gradual decline in pandemic-delayed charge-offs and recoveries from earlier losses. He also credited the company’s lending decisions and its use of technology and data to select customers and monitor accounts.
The CFO said Capital One had sacrificed some growth in earlier years to pursue better long-term credit outcomes. He added that the Discover acquisition has provided insights into collections and recoveries by allowing the company to combine practices from both businesses.
On marketing, Young said Capital One retains the ability to reduce spending if conditions warrant, as it did early in the pandemic. But he said the company would face a higher bar for pulling back some newer categories, including investments in premium customers and deposit gathering.
Capital One is currently “firing all cylinders” across its marketing categories, Young said. Even if economic conditions worsen, he said, the company could continue spending where it expects customer relationships to generate positive returns.
Premium Cards and the Discover Network
Young said affluent customers can be attractive because they generate fees and spending-related revenue, have low losses and tend to remain with the company. Winning them requires sustained investment in experiences such as travel, lounges and dining, he said.
The Discover acquisition could eventually provide a competitive advantage through network ownership, Young said, but the immediate priority is improving card acceptance, particularly internationally. He said the network does not yet have acceptance parity with Visa and Mastercard.
Capital One continues to offer products on multiple networks and maintains relationships with Visa and Mastercard while working to broaden acceptance of its own network, Young said.
Capital and Brex
Asked about the path toward an 11% capital level, Young distinguished between a capital “need” and a target. He said the figure reflects the company’s analysis of its balance sheet, while decisions about actual capital levels also consider growth prospects, stock price, potential regulatory changes and other factors.
Capital One returned $10 billion of capital over the preceding four quarters, Young said. He did not provide a timetable for reaching 11%, saying the company values holding capital both as protection against a downturn and as a resource for pursuing opportunities.
Young said acquisitions are evaluated opportunistically against strategic and financial criteria. Discussing Brex, he said the deal expands Capital One’s presence in commercial payments and brings capabilities in areas including expense management and accounts payable.
Integration is going well in its early months, Young said, with attention to regulatory, cybersecurity and risk-management requirements. He did not specify when Brex would materially affect Capital One’s financial results.
About Capital One Financial (NYSE:COF)
Capital One Financial Corporation is a bank holding company that provides credit cards, consumer banking, auto financing and commercial banking services. Its offerings include credit cards, deposit accounts, loans and financial services for businesses. The company traces its roots to a credit card business established within Signet Banking Corporation in 1988 and became an independent company in 1994. Capital One is headquartered in McLean, Virginia, and serves customers primarily in the United States, with credit card operations also in the United Kingdom.
