People who work in a specific industry often don't see, or respond to, the changes taking place around them, according to Richard Fairbank, chairman, president and CEO of Capital One Financial. That's because the industry's conventional wisdom is so embedded in their brains that they don't notice how stale it has become. "There's an old Will Rogers saying that sums it up," said Fairbank, who gave a talk on leadership this fall at Wharton. "It ain't what he don't know that scares me. It's what he knows that just ain't so."
Narrow-minded attitudes within the financial services industry created the opportunity for Fairbank and his then-partner, Nigel Morris, to create Capital One. Fairbank stumbled upon the idea for the company while a management consultant in the late 1980s. Today, Capital One, based in McLean, Va., is one of the nation's biggest credit card issuers, earning $1.1 billion on sales of $4.4 billion in 2003, up from $900 million and $4.2 billion a year earlier. It has 47 million accounts, offers numerous financial products and is always experimenting with new ones. Fairbank said his company does about 64,000 product experiments a year. Over the five years that ended Oct. 27, its stock returned 59.4%, more than twice the return of the Dow Jones Diversified Financial Index.
When Fairbank, in his consulting days, first studied the credit-card division of a major bank, the idea of experimenting with financial products, especially credit cards, was heretical. "The credit card business was very profitable but was run by bankers who had grown up in the traditional banking environment," he recalled. "Everybody in America had the same terms, and half of America couldn't qualify."
Banks were then charging 19.8% annual percentage rate for their cards and justifying the high cost by pointing to the significant number of card borrowers who defaulted on their debt. But as he questioned bankers further, Fairbank learned that they made little effort to explore customers' creditworthiness.
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