Capital One 2006 Annual Report Download - page 28

10
operational systems to support complex marketing and account management strategies and the development of new and
diversified products. Our commitment to managing risk and ensuring effective controls is built into all of our strategies. We
believe that the continued development and integration of these systems is an important part of our efforts to reduce costs,
improve quality and provide faster, more flexible technology services. Consequently, we continuously review capabilities
and develop or obtain systems, processes and competencies to meet our unique business requirements. As part of our
continuous efforts to review and improve our technologies, we may either develop such capabilities internally or rely on third
party outsourcers who have the ability to deliver technology that is of higher quality, lower cost, or both. Over time, we have
increasingly relied on third party outsourcers to help us deliver systems and operational infrastructure. Consistent with this
approach, in August 2005 Capital One and Total System Services Inc. (TSYS ) finalized a five year definitive
agreement for TSYS to provide processing services for Capital Ones North American portfolio of consumer and small
business credit card accounts. This transition is largely complete, and is scheduled to be finalized in the first half of 2007. We
believe that over time our transfer to this new technology platform will allow us to achieve cost savings, increase speed to
market, expand product and service flexibility, and enhance our ability to innovate while reducing operational risk.
As a part of the North Fork integration, planning is well underway to determine preferred systems and platforms for our
banking businesses.
Funding and Liquidity
A discussion of our funding programs and liquidity has been included in Item 7 Managements Discussion and Analysis of
Financial Condition and Results of OperationsFunding on pages 46-50.
Competition
As a marketer of credit card, consumer and commercial financial products and services, we face intense competition in all
aspects of our business from numerous bank and non-bank providers of financial services. Some of these companies are
substantially larger and have more resources than we do. Our industry has experienced substantial consolidation and may
continue to do so; this consolidation continues to create competitors who are larger and have more resources than we do. In
addition, such consolidated and/or larger competitors may have a more diversified product and customer base, operational
efficiencies and more versatile technology platforms than we do. Consolidation has and may continue to increase competitive
pressures on both us and other companies in our industry.
Each of our financial products is marketed to specific consumer populations across the credit spectrum. The terms of each
product are actively managed to achieve a balance between risk and expected performance. For example, credit card product
terms typically include the ability to reprice individual accounts upwards or downwards based on the customers payment
and other performance. In addition, since 1998, we have marketed low non-introductory rate cards to consumers with low-
risk and established credit profiles to take advantage of the favorable risk return characteristics of this consumer type.
Industry competitors have continuously solicited our customers with these and other interest rate strategies. Management
believes the competition has put, and will continue to put, additional pressure on our pricing and general product feature
strategies.
We compete with international, national, regional and local issuers of Visa® and MasterCard® credit cards, as well as with
American Express®, Discover Card® and, to a certain extent, smart cards and debit cards. In general, customers are attracted
to credit card issuers largely on the basis of price, credit limit and other product features, and customer loyalty is often
limited.
We compete with national and state banks for deposits, commercial loans and trust accounts and with savings and loan
associations and credit unions for loans and deposits. We also compete with other financial services providers for loans,
deposits, investments, insurance and other services and products. In addition, we compete against non-depository institutions
that are able to offer products and services that were typically banking products and services. Finally, we compete against
other lending institutions in our healthcare financing and mortgage lending businesses.
In motor vehicle finance, we face competition from banks and non-bank lenders who provide financing for dealer-originated
loans. We also face competition from a small, but growing number of online automobile finance providers.
We believe that we are able to compete effectively in both our current and new markets. There can be no assurance, however,
that our ability to market products and services successfully or to obtain adequate returns on our products and services will
not be impacted by the nature of the competition that now exists or may later develop. For a discussion of the risks related to
our competitive environment, please refer to Risk FactorsWe Face Intense Competition in All of Our Markets on page
18.