Capital One 1997 Annual Report Download - page 5

risk adjusted margin (total revenue less net charge-offs as a per-
centage of average managed earning assets) widened to a record
9.10% from 8.15% at the end of 1996. Risk adjusted margin is a
key measure of profitability in the credit card business. Our strong
showing in a year when most of our competitors saw declines in
risk adjusted margin is one more example of the underlying power
of our strategy.
Operating efficiencies increased dramatically, primarily as a
result of major technology investments made during the last few
years. Operating cost per account fell by 10% during 1997 to
$63.32 from $70.59 in the last quarter of 1996.
The Power Behind Our Performance
Capital One’s success in 1997 is the latest reward of a pursuit that
began a decade ago, when the two of us brought our innovative
information-based strategy to the credit card division of Signet
Bank. In place of the banking industry’s one-size-fits-all approach,
we set out to “mass customize” our products, tailoring the terms
of each account to the individual’s needs and risk profile. We did
this by building massive databases of consumer information and by
transforming our entire Company into a scientific testing labora-
tory. We test and customize everything—products, prices, credit
lines, account management, retention and collections.
Through mass customization—which we view as the ultimate
power tool of marketing—we can deliver the right product to the
right customer at the right time and at the right price. Mass cus-
tomization gives Capital One a way to profitably meet the credit
needs of virtually all consumers because it enables us to balance
risk and reward in every single account.
This systematic, scientific approach has enabled Capital One to
leapfrog the competition, and it continues to power the Company’s
growth. After ten years of major investments in information
Nigel W. Morris
President and
Chief Operating Officer
Richard D. Fairbank
Chairman and
Chief Executive Officer
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