Capital One Buys Data Analytics Firm To Tap Spending Trends At Local Businesses
Capital One Financial (NYSE:COF) continues to bulk up its analytics arm with the acquisition of data aggregator firm Bundle Corp. for an undisclosed sum. [1] The card-focused banking group pioneered the use of analytics to understand consumer spending patterns to come up with products and offers best suited to the requirements of various consumer groups. And the recent acquisition will allow the bank to capitalize on Bundle’s proprietary analytics technology powered by data from more than 20 million Visa (NYSE:V) and MasterCard (NYSE:MA) branded cards. Bundle is the second technology firm acquired by the bank to expand the Capital One Labs support business this year, after the acquisition of Bankons in May. [2] We maintain a $61 price estimate for Capital One’s stock, which is at a premium of under 10% to the current market price.
See our full analysis for Capital One
Capital One’s focus on its cards business is reflected in the chart above which shows that nearly two-thirds of its total value comes from the cards business. And as competition increases in the card industry – which includes giants like JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Bank of America (NYSE:BAC) – it becomes inevitable for a player like Capital One to differentiate itself from the others by offering products better tuned to the needs of its customers.
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The company’s considerable reliance on analytics to bring in new business has been a subject of great interest for quite some time now, with a Harvard Business Review report from January 2006 being one of the earliest documents capturing the effectiveness of the process involved. [3] The report noted that possibly the biggest factors contributing to Capital One’s 20% annual earnings growth between 1995 and 2005 was its ability to build its business based on the data it collected and analyzed. Even in 2005, Capital One was conducting as many as 30,000 experiments a year by offering credit cards with different interest rates, incentives, and marketing techniques. The goal was “to maximize the likelihood both that potential customers will sign up for credit cards and that they will pay back Capital One.” [3]
In simpler terms, the aim was to build a credit card base by handing out more cards while making sure that charge-off figures are kept as low as possible. This is where the acquisition of Bundle comes in as it complements Capital One’s analytics base to bring in new business avenues in terms of customers as well as local business tie-ups. We believe that the acquisition is a step in the right direction towards improving the competitiveness of the card business, and it will definitely add value by helping Capital One identify customer requirements better, thereby allowing it to set aside lower provisions over the years to come.
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Notes:- Capital One Acquires Bundle, A Data-Driven Local Business Directory, TechCrunch, Nov 30 2012 [↩]
- One Year After its FinovateSpring 2011 Demo, Bankons Inks Deal with Capital One, Finovate, May 7 2012 [↩]
- Competing on Analytics, Harvard Business Review [↩] [↩]