Capital One presses on with credit card marketing blitz

Capital One Financial spent more on marketing at the start of the year than analysts expected, with executives saying they’ve been “leaning hard into” opportunities to gain new credit card customers.

In its quarterly earnings release for the first quarter, the McLean, Virginia-based lender reported $918 million in marketing costs. While that number was down 8% from the nearly $1 billion it spent the prior quarter, the level of spending reflects Capital One’s plans to press on with its marketing surge from late last year.

“We’re seeing attractive growth opportunities across our businesses, and we’re leaning hard into them while the opportunities are there,” Richard Fairbank, chairman and CEO of the $434 billion-asset bank, told analysts and investors on Wednesday.

Lenders hunkered down on marketing early in the pandemic but escalated their spending last year as they looked to capitalize on consumers looking to borrow again. With customers “roaring back” to travel and their pre-COVID activities, Fairbank said competition among card issuers to lure customers with rewards has become “probably a notch more intense” than it was before the pandemic.

Competition for cardholders is “intense” but “not unreasonable,” Fairbank said, saying the industry has not sacrificed underwriting standards or pricing in a way that would lower Capital One’s marketing appetite.

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“We have a careful eye to see what that does to the opportunity that we’re experiencing,” Fairbank said.

A large part of the marketing increase has focused on what Capital One calls “heavy spenders,” including those that may be interested in the company’s Venture X credit card. The premium travel card launched last fall to compete with offerings from American Express and Chase. Among the perks for Capital One’s Venture X card, which has an annual fee of $395, are an online travel booking portal and airport lounges it is rolling out at a few locations.

Several analysts were expecting Capital One’s marketing costs to slow significantly after jumping in the fourth quarter of 2021.

Higher marketing expenses and investments in tech talent should weigh on Capital One’s expenses in the coming months, but they are also positioning the company for future revenue growth, wrote Jefferies analyst John Hecht.

Jon Arfstrom, an RBC Capital Markets analyst, also wrote that while investors have raised questions on Capital One’s marketing expenses, it is “seeing positive core momentum” and loan growth.

The bank’s net loans held for investment rose to about $269 billion during the first quarter, up about 1.2% from the prior quarter and 17.5% from last year. Its purchase volumes also rose to $126.3 billion in the quarter, up 26% from a year earlier.

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Fairbank said that reflects the “continued traction we’re getting” from the company’s decade-long focus on heavy spenders. That population requires “higher up-front costs of brand building,” marketing, bonuses and card perks, he noted.

“But long-term value of the heavy spender franchise is tremendous, with high spend levels, strong margins, very low losses, low attrition and a lift to our brand,” Fairbank said.

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