Running Head: CAPITAL ONE BANK

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CAPITAL ONE BANK 2

Real Life Case Study Project: Capital One Bank

Name

Institution

Date

Capital One Bank

Introduction

Technology has led to a complete shift of paradigm in the functioning of the banks as

well as delivery of the banking services. Traditionally, all the banking transactions required

physical visit to the bank. Presently, most of the banking transactions can be done from any

place without necessary having to visit the bank. Technology has ceased to be an enabler but

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a driver. Growth of communication technology, mobiles and the internet has increased the

dimension of the banking industry. The available information technology is being leveraged

based on customer acquisitions to drive process efficiency and automation in delivery of

services to the customers. Many of the IT initiatives in most banks started in early 1990s with

emphasis on adoption of the core banking solutions, branch automation and centralization of

the operations. Most banks have transformed to technology-driven processes that have seen

the movement from manual to automated systems. The use of ATMs, online bill payments

and mobile banking has obviated the need for the visiting of the branches by the customers.

Such changes have been productive enabling banks improve their operational efficiency and

increase the competitiveness. Banking industry is moving towards business intelligence and

decision making so as to optimize the IT infrastructure. As a result, this paper presents a real

life case study project on Information Technology in Capital One Bank (Cull & Jonathan,

2013).

Section 1.0: Organizational Profile of Capital one Bank

The Capital One Bank is based in U.S and it specializes in home loans, credit cards,

banking and savings and auto loans. The bank is a member of the Fortune 500, and it helped

in pioneering mass marketing of the credit cards in early 1990s. It is the sixth-largest deposit

group in United States. Its corporate offices are in Virginia, Tyson’s Corner and

unincorporated Fairfax County. T

he bank was founded in 1988 by Nigel Morris and Richard Fairbank as a spin-off for

the Richmond Bank which is based in Virginia. The bank was the first to be fined by

Consumer Financial Protection Bureau because of defrauding the customers. The bank

entered the retail banking after acquiring New Orleans bank in 2005. The bank jettisoned its

platform for the mortgage during the subprime financial crisis in 2007. This resulted in

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investor pressures. By November, 2008, the bank was benefiting from bail-out from

Emergency Economic Stabilization Act of US$3.56 billion. The bank completed its

repurchases in shares, in 2009 (Immaneni & Ron, 2007).

The office of Comptroller of currency fined the Capital One Bank for misleading

customers. The customers were forced to pay extra for credit monitoring or payment

protection after taking the card. As a result, the company paid $210 million for the payment

of legal action taken to refund their customers. The bank is a parent company of the Capital

One Auto Finance in Plano, Texas. The bank became the largest auto lender after buying

PeopleFirst. The company had previously dealt with auto loans through the auto dealerships

and direct mail for the refinancing of existing auto loans where the shoppers were able to

apply for loans online. This ensures fast transactions and immediate feedback from the bank.

To the dealership, the buyer appears as though he is paying cash, and the checks are used in

purchasing used or new vehicles, as well as refinancing the existing auto loans.

Services Offered

The bank began as a consumer lending, hence its profitability was unpredictable.

Despite of most monoclines going out of business or being acquired cheaply during the hard

times, capital one survived through it all. Instead, the bank experienced tremendous growth

due to the effectiveness of its information-based strategy. This pioneered the use of data from

customers in tailoring the products to the subprime consumers. The company possessed one

of the largest databases for the consumer data. The bank uses Ardent's DataStage Extraction

and Transformation Tool (ETT) in building the data warehouses for all its operational

departments. Such a data warehousing initiative forms a core component in improving the

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management of meta-data, as well as delivery of critical decision information support. This

strategy is leveraged through cell phones (Damar & Lynn, 2010).

The bank sponsors sports teams like the annual college ball in Florida and Football

League Championships in Nottingham Forest. The company sponsored curling events

between 2008 and 2009 across Canada, and each year, the company sponsors mascot

challenge. The bank is among the top ten financial services providers, hence the stability and

strength of meeting the needs of the customers. The company is committed to with a

dedicated team of specialists who enhance the design of banking solutions that meet the

specific needs of the company. The company has a comprehensive suite of lending, specialty

finance, treasury management solutions and investment. The bank ensures that its customers

are able to expand their business as well as protect them. This may help them achieve the

strategic objectives of the business.

Evidently, the management in capital one believe that the bank should broaden the

appeal for its brand through social media and website. This will help them win the young

consumers. The acquisition of the ING direct has enabled the company improve its

transactions in order to deliver attractive deal of economics as well as compel a long-term

strategic value. The combination of ING and Capital One creates a valuable and unique

banking franchise to include the advantaged assets, as well as the greater local banking, in the

attractive markets. This sustains and enhances the key sources of shareholder value on long

term basis. This includes the returns, growth and generation of capital (Castelli, 2004).

This innovative platform is aligned in-line with the vision of Capital One Bank. The bank is

committed to enhancing and sustains the customer relationships that are central to success of

the two banks. The bank is there to make a dramatic deal that will accelerate the participation

in Web 2.0-based competitive arena (Manandhar, 2002).

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Key Challenges Facing Capital One Bank

The biggest challenge facing Capital One Bank is the changes in demand and supply

related with asset. The changes in demand and asset occur due to changes in monetary policy.

The demand for safe financial assets has expanded, and as a consequence, few people

experience impacts of the economic recession. Profitability in most banks depends on

management of the bank driven by increased consolidation, Changes in production

technology, regulation and dissolving borders. This act as the major source of the competitive

advantage in banks (Usoro, 2012).

The Capital One Bank faces pressure from the changing trends in technology, politics

and regulatory. While most of these changes appear urgent, they are not strategic. For

instance, the implementation of mobile banking as a regular delivery channel affected the

development. This is because the company is compelled to keep in pace with the changing

trends. The bank must also develop the strategy based on the social media, and this calls for

parameter resolution. Other challenges involve the problems experienced in coming up with

new levels of growth and sustainable profitability due to low interest rates. The rebuilding of

the asset quality, as well as strengthening of the capital adequacy, is quite problematic. The

enrichment of the business value through promotion of customer of customer relationship as

well as restoration of the customer confidence especially after recession greatly affects the

profitability in the bank (Avgerou, 2003). Due to these challenges, Capital One Bank faces

one overriding challenge of staying disciplined as attentive amidst all challenges.

Section 2.0: Types of IT Systems Used in Capital One Bank

Computerization of Operations

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Information technology is changing the face of the banking processes in Capital One

Bank through computation. The IT is used in net banking, mobile banking, shopping,

ticketing booking, payment of bills, transfer of funds and automated teller machines (ATMs).

Technological innovations have enhanced opening up of new delivery channels within the

banking industry. Taking the help of IT in dealing with the new challenges have enabled

banks take on new economic poses. IT, therefore, increases the customer value through

customer relationship management (CRM) applications. The Capital One Banking is

currently in the midst of IT revolution. The combined competitive and regulatory reason has

increased the importance of the automation within the banking sector. This has seen the

increase in productivity, hence the gain in competitive edge. Capital One Bank is currently

opening up for the latest technology as well as the modification of technology to suit the

banking environment. Below are some of the IT services used by Capital One Bank.

E-Cheques (Electronic Payment Services)

The e-cheque are a new technology that has been implemented to replace the

conventional paper cheque. This has already been amended to include the e-cheque

instruments and truncated cheque. E-cheques act as a mode of electronic payments. This

technology was developed by the consortium of the Silicon Valley merchant bankers and

researchers. Many financial bodies have since then included it in their systems. The working

of e-cheques is similar to paper cheques and act as legal payment systems. The system uses

XML documents to authenticate parties for the transaction. The e-cheques are defines by the

Financial Services Markup language (FSML) that allows for inclusion or elimination of the

documents blocks. The signatures are accompanied by certificates issued by the bank to tie

the signer to the bank account. E-cheques make can use different accounts to protect the

standard chequing account from fraud (Joia, 2007).

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The existing ANSI X9.46 standards handle the settlement through FSML

representation, rather than cheque image and the ANSI X9.37 cash letter that is contained in

the X9.46 encapsulation. The related benefit of e-cheques is that consumers can use the e-

cheques in making payments for online purchases. Online merchants can receive the

payments instantly, and instances of the cheque to bounce are minimal since the banks of the

customers are involved in the transactions. Furthermore, banks may do paperless transactions

unless the merchant fails in accepting the e-cheque.

Real Time Gross Settlement (RTGS)

The RTGS is a research analysis system through which banks receive electronic

instructions to the transactions on transfer of funds from accounts in their bank to accounts in

other banks. The RBA operates and maintains RTGS to enhance efficiency in the transfer of

funds within banks to enhance the financial operations. The transfer of funds takes place in

real time basis enabling instantaneous delivery of money to the beneficiary. The bank of the

beneficiary must credit the account within two hours. The RTGS system runs on the credit-

push basis where the final irrevocable settlement occurs only when the funds are available in

the settlement account of the commercial bank. This system allows management of liquidity

by the banks to contribute to the realization of the stability of the financial system of the

bank.

The real time instructions are performed by simultaneous credit and debit

transactions. After successful execution of instructions from the account of the sender, the

payment is made in the account of the receiver, and this is irrevocable and final. Some related

benefits of RTGS are the related efficiency and speed since the transactions are performed on

real time basis. This enables the bank manage their liquidity and settle their accounts and

eliminates the risks involved with the payment exposure. RTGS is an effective tool that

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ensures irrevocability and finality of payments, and hence boosts the confidence of the

general public and investors (Abel, 2012).

Electronic Funds Transfer (EFT)

EFT system involves making of cash payments by any person to another person and

at times may involve giving the authorization on transfer of funds directly from a person’s

account to the account of the beneficiary. This requires furnishing of complete details on the

name, account number, account type, name of the bank, branch or city of the receiver to the

bank while making the request for transfer. This ensures that accurate and faster processing

of the money. EFT happens after digital instructions are sent to the bank authorizing for the

movement of funds between two accounts. The customer signs in an authorization form that

allows the bank to deduct the amount of payments for certain dates. The customer thereafter

provides a voided check of verifying the information about the account. The charges are then

deducted automatically from the back account and deposited on the bank account of the

receiver. EFT provides a simple way of making payments. A one-time authorization enhances

debiting of the said amount from the account of the customer (Costantino & Brebbia, 2006).

Electronic Clearance Service (ECS)

ECS refers to a retail payment system used in making bulk payments of a similar

nature particularly when the payments are repetitive in nature and of smaller amounts. This

facility is mostly used by government departments and companies when dealing with large

payments instead of using the individual funds transfer. The ECS payments are initiated by

the user with intentions of making bulk payments to several beneficiaries. The person

initiates the transactions after registration after which they obtain consent and account

particulars of the beneficiaries. The beneficiaries can request the paying institution use the

ECS mechanism to effect their payment (Ravi, 2008).

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The ECS users who intend to effect the payment must submit the data in a particular

format to the clearing house that in turn debits the account of ECS user through the sponsor

bank on the appointed day and credits the account of the recipient for affording onward credit

to accounts of ultimate beneficiaries. The beneficiary furnishes the mandate giving the

consent that avails the ECS facility. The user must communicate all the details to the bank.

This service is preferred since it is trouble-free and eliminates the need of going to the

collection centers. Also, the ECS users can easily monitor the debits (Castelli, 2004).

Automatic Teller Machine (ATM)

Automatic Teller Machine is among the most popular devices used in the banking

sector, in United States. An ATM enables the customers withdraw their cash any time of the

day. The device allows the customer who has the ATM card perform the routine banking

transaction without any interaction with the human teller. Furthermore, the ATMs can be

used in paying the bills for utility, transferring of funds between accounts, depositing cash

and cheques into accounts and making balance enquiry among others. An ATM requires data

terminal consisting of two input devices and four output devices, and a host processor. The

host processor enhances the connection of the ATM and communication with the user.

Internet Service Provider (ISP) provides the gateway to intermediate networks and the

computer in the bank. Leased ATMs have 4-wire point-to-point dedicated telephone line that

helps in connection with the host process. The various components of an ATM include the

card reader that reads the information after the magnetic stripe is swiped through and the

keypad that allows the user fill in the details after the card is recognized (Greenstein &

Shane, 2004).

Point of Sale Terminal (POS)

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The point of sale terminal refers to use of a computer terminal linked online to

computerized files containing the customer information in the bank. This also contains plastic

transaction card that is coded magnetically and enhances the identification of the customers.

During the transactions, the account of the customer is debited while that of the retailer is

credited by the computer for the amount purchased. Upon payment, the POS checks for the

validity of the card, connects with the bank that issued the card. When the funds are available

in the account of cardholder, then the POS prints the receipt and transfers the amount to the

account of the trader (Batiz-Lazo, 2011).

Electronic Data Interchange (EDI)

The EDI refers to the electronic exchange of the business documents such as invoices,

purchase orders, shipping notices and receiving advice among others. The processing is

usually done in a standard and universal way that is acceptable between the involved trading

partners. The Capital One Bank has quickly responded to the technological changes within

the banking industry, and the continuance of such trends is redefining the banking operations

through customization using the leveraging technology. The technology is enhancing

efficiency in the banking sector where the customers are able to make transactions whenever

they wish from wherever they are, and this is reducing the need for opening up of physical

branches. EDI reduces the number of steps by providing a fixed structure for the transmitted

data with the prepared data only transmitted to the user after integration of the application

system information. EDI is used only when there are two partners involved after which a

contractual agreement becomes necessary (Ravi, 2008).

Section 3.0: Organization of IT

Currently, it is becoming imperative for the banks to ascertain and assess the

advantages of implementation of Information technology. Technology is advantageous but

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requires precautions and safety nets. Increased use of technology has caused the security

concerns. As a result, the IT function in banks must be organized clearly to avoid any

mishaps on this account. Banks must properly manage their IT function for their networks

and internal security. Passing of Information Technology Act in 2000 acted as a boon to the

banking sector in United States where banks are expected to abide by their covenants

(Rodrik, 2007).

The Capital One Bank has made efforts to cover the online transactions based on the

consumer laws of the country. The choice of the most appropriate channel, the justification of

investment in IT, e-governance, security concerns and technological obsolescence, as well as

outsourcing of the IT operations, pose major challenges and issues regarding use of IT in the

banking operations. The increased use of mobile banking ad e-payments is the key areas that

require change management approach. The focus is moving towards processes and systems

required in the maturity phase of the needs curve of technology. Capital One Bank needs to

focus more on profitability and cost management, executive information reports, business

intelligence, and data analytics and warehousing. Improvement of the internal efficiency and

effectiveness with real-time and data warehouse access to all the customer information will

enhance decision making in banks and facilitate the ability of delivery of appropriate services

and products to their customers (Immaneni, 2007).

Capital One Bank must see beyond applications involved in providing solutions to the

current problems. The bank need to establish a vision related to comprehensive infrastructure

that comprise of all he internal and external networks to move the information for the data

stores to users. The importance of IT-business unit partnership may not be overemphasized.

The processes and people are as vital for success as software and hardware components in the

banking industry. Capital One Bank has made huge technological advances in information

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storage. Nevertheless, the full power of using that information to enhance more productivity

and improve markets is still unrealized. The continued emphasis on peripheral business and

technological processes and related effects has made the Capital One bank seriously neglect

their enterprise and personal wide-intelligence.

Infrastructural effectiveness is measured based on the value it brings to a customer.

Such value is diminished by non-networked individuals and business units. Capital One Bank

must, therefore, provide training and access to the member banks involve with direct or

indirect service to customers. This can only be realized through the use of clear standards and

expectations to enable the organization of information technology bring the individuals in

line with the organizational objectives. The economic role of the payment system connects

intimately to the economic role of money. The establishment of Core Banking Solution

(CBS) allows for banking at any time. The bank has also increased the efforts through the use

of Electronic Service Clearing (ESC), NEFT and Real Time Gross Settlement (RTGS). This

forms the leading interconnectivity that enhances easy intra and inter-bank transfer of funds.

The increased use of mobile banking and debit cards is enhancing easier payments using

different factors linked to the bank. This facilitates easy online transactions. Currently, the

technological development relates to computerization of all the branches in Capital One Bank

in adopting the core banking solutions (CBS). A very crucial development is the increased

percentage of branches within the public sector that have implemented CBS (Abel, 2012).

Energy Management

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Capital One Bank is conscious of carbon foot print generated and is working towards

energy management as well as use of the greener technology. This is achieved through

adopting the server virtualization technologies that are meant to save on power, floor space

and cooling components. The use of data enhancements as well as the best practices for the

optimum usage of space enhances energy management. The bank has also adopted the blade

technology to enhance computing power within a smaller footprint. This has also seen the

bank upgrading the older servers and networking equipments that used to consume a lot of

power. The dynamic power capping of the servers using new power saving technology and

solar powered ATMs is a worthwhile effort geared towards energy management (Cull &

Jonathan, 2013).

IT Outsourcing in Capital One Bank

Most banks in United States is at crossroads. According to Capital One Bank, profits

are not keeping in pace with the costs of equity. As a result, the bank is seeking for the most

appropriate ways of reengineering the banking model to enhance profitability. The IT

outsourcing has morphed as an exception to the rule of banks and other businesses

worldwide. The acceleration of information technology has compelled the bank source IT.

However, the increased use of IT has not corresponding responded to the growth. The

increased demand has increased the complexity related with IT. The selection and

management of IT outsourcing depends on customer service, costs, quality relationship

management, innovation and speed. However, unclear understanding of these driver results in

dissatisfaction due to mismatched provider-customer pairings (Greenstein & Shane, 2004).

The expansion of IT outsourcing compels the management take a holistic view on all

the outsourcing decisions. Due to the rapid changes in service offerings, Capital One Bank

must not rely on outsourcing, and instead, operations and systems must become procurement-

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centric for direct reports and line-of-business general managers. The business process

outsourcing (BPO) may work in combination with the outsourcing where new entrants join

the traditional players. The BPO solutions are becoming considerably flexible, growing

around the monolithic frame systems. On the other hand, the Software as a Service (SaaS)

has captured the attention of finance and operations by preventing the implementation delays.

This also enables employees perform their operations from the facilities from the facilities of

the bank. This calls for decision makers to consider the break-even point for which the fixed

costs provide excellent shareholder value.

The operational outsourcing enhances the achievement of scale and economic

efficiencies through outsourcing of the commoditized aspects of business process. The

system outsourcing must be optimized based on procurement while labor arbitrage enhances

systems and operations decisions. Due to disappointments from most outsourcers, Capital

One Bank is reluctant to undo the decisions since they require a clear understanding of all the

organizational needs (Avgerou, 2003).

Section 4.0: Future Trends of capital One Bank

The infrastructure of the bank is not immutable where new technologies surface on a

daily basis and evolution of new media will compel the management reconsider the

infrastructural objectives. The definition of the fundamental infrastructural goals will enhance

the focus of the bank is adapting without a y distraction by technologies which do not

contribute to the customer value. IT function can play a key part in enabling organizations

adapt and thrive in the new status quo. Capital One Bank will be able to align its teams based

on the organizational needs where the management provides strong operational and strategic

support. The IT function must consider the most appropriate role, where the senior

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management may require transformation and innovation through the IT. The emphasis could

be made on more basic services to ensure that costs are manageable for enhanced daily

operational needs. The IT typically fits in utility, protectors and performer (Manandhar,

2002).

IT as a utility enables the business is constantly running, as a protector, IT enhances

management of the bank. As a performer, IT enhances delivery of tangible business value

when the function transcend to the daily operations in bringing the real change.Technology is

enabling the bank to perform its services, and this is driving the transformation within the

industry. Internet and mobile banking are going to be indoor in the near future. Despite the

complexity and sophistication of the IT systems, the Capital One Bank considers them as

energy guzzlers. Therefore, the future related to the banking sector is anticipated to make

rapid straights (Rodrik, 2007).

CRM Technologies in Management

Customers normally expect the bank to offer comprehensive financial services. They

are attracted by the effectiveness of the bank in delivering attractive services and products to

enable them be cleared through appropriate channels. The behavior of the consumer is critical

in changing how the IT functions. The banking sector, therefore, aims at moving a CRM-base

model that will enable the bank move towards development of better services and products to

the users. The management of knowledge treats people’s behavior as an essential and equal

component for effective information-sharing. This enables the knowledge acquired from

previous situations being used in making the present decisions. The management must,

therefore, play a critical role in establishing a knowledge culture by codifying the relevant

experiences and packaging them in such a way so as to maximize their relevance in a

situation that enhances value creation. Codification of knowledge requires further sharing

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with all the appropriate individuals. This enables the bank to group its products and services

towards service of a particular market segment (Ravi, 2008).

For Capital One Bank, information technology is critical when making decisions

through creating a means of collecting the information and codifying the experiences from

similar decisions in financial management, relationship development and customer service.

Knowledge of customer needs requires regular updating across all the branches. Technology

allows the bank to do the updates. The valuable knowledge is normally reflected through

performance of the financial portfolio and ease in making transactions.

Conclusion

The information Technology in Capital One Bank has driven the transformation in the

service delivery. Internet and mobile banking are gaining full throttle in Capital One Bank.

This gives an assurance for greater efficiency in the banking Industry.

References

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