What in the World is Capital One Doing?

by Stephen

In a largely unexpected move, Capital One announced yesterday that as of a to-be-determined date in December, their Capital One “miles” currency earned from the Venture and Spark card products will become transferrable to a number of airline partners, à la those from Chase, Citi, and American Express. The twelve transfer partners Capital One will offer are largely a mix of those offered by Citi ThankYou Points and American Express Membership Rewards, and range from perennial and promiscuous partners like AirFrance/KLM Flying Blue to the esoteric and largely unusable (when was the last time anyone got excited about Hainan Airlines’ Fortune Wings Club)? For those who missed the memo, the full list of transfer partners is:

  • Aeromexico Club Premier
  • Air Canada Aeroplan
  • Alitalia MilleMiglia
  • Avianca LifeMiles
  • Cathay Pacific Asia Miles
  • Etihad Guest
  • EVA Infinity MileageLands
  • Finnair Plus
  • AirFrance/KLM FlyingBlue
  • Hainan Airlines Fortune Wings Club
  • Qantas Frequent Flyer
  • Qatar Privilege Club

By adding airline transfer partners, Capital One is no doubt trying to add value to their rewards currency and to attract new customers. Notably, this move represents a significant shift in Capital One’s overall strategy, as miles/points hobbyists have never been the target market for the company. Rather, Capital One has always gone after those customers that the other large banks have traditionally eschewed. The bank has long considered itself a “bank of refuge” for traditionally undesirable demographics and has become quite good at carving out a profitable niche among those customers. Capital One at one point (and perhaps may still) promoted an internal company motto and focus of “banking for good”, i.e., having strong underwriting and providing services to clients who otherwise wouldn’t be able to obtain lines of credit or other personal banking services due to their perceived unprofitability.

Capital One, as such, has never been about competing with other banks on the value proposition of their products. To be sure, its admirably strong and widespread marketing suggests otherwise, but pretty much all of us in the know have ignored the bank’s products mostly in part due to their weak rewards structures. I’d venture to say that any blogs promoting Capital One products over other points currencies up until yesterday’s announcement were clearly not working in the interests of its readers, and indeed even affiliate bloggers rarely pimp Capital One cards.

The addition of 12 airline transfer partners, undoubtedly, is to increase the value proposition of Capital One “miles”. The apparent contradiction herein, however, is that Capital One’s traditional customer base and even most “average” credit card customers will derive zero value from these transfer partners. Ask five people who hold Amex cards what the value of Asia Miles or Etihad Guest miles are, and you’ll likely be met with 3-4 blank stares. What are the chances, then, that someone who signed up for a Venture card because Jennifer Garner convinced them of the value of a “miles”-earning credit card is going to be able to successfully find award space and subsequently book flights using a program even as easy-to-use (for us hobbyists, at least) as Aeroplan?

Of course, the overall value of Capital One’s transfer partners is dubious as well, particularly when compared to that of competitor banks. LifeMiles, Flying Blue, Asia Miles, Etihad Guest, MilleMiglia, Aeroplan, EVA Infinity MileageLands, Aeromexico Club Premier, Qantas Frequent Flyer, and Qatar Privilege Club (10/12) all partner with at least one other transferrable points currency, and all of those other currencies have more favorable transfer ratios when compared to Capital One’s 2:1.5 or 1000:750 ratio. Why pay an annual fee on the Venture card when one could pay no annual fee with a card that offers a better transfer ratio like the Amex Everyday or even better 2x earn with no fee on the Blue Business Plus? If Capital One is really trying to go after those knowledgable about points and miles, it doesn’t make a compelling argument at all.

Not only does Capital One’s transfer scheme offer less value than already existing products, the bank has historically been very good at identifying and automatically declining customers that it perceives to be unprofitable, including us “gamers”, as the company refers internally to miles/points hobbyists. Indeed, a not insignificant amount of resources and person-hours in the company go to working on ways to detect, deter, and reject potential customers who are believed to be in it only for the miles; an example of this is Capital One’s tendency to pull reports from all 3 credit bureaus when reviewing applications — even if they did offer a strong product lineup, this alone would still be a barrier for some to apply. There is a growing concern among card issuers about the unprofitability of “churners”/”gamers”/whatever you want to call it; one needs to look no further than Chase’s widely publicized losses after the launch of the CSR, or Amex’s increasingly aggressive RAT and recent move to limit bonuses to people who are perceived to be unprofitable churners. In light of all of this, it’s a bit of a head-scratcher that Capital One has suddenly (admittedly, I’ve been told transfer partners have been in the works at the bank for ~2 years) decided to go after miles/points enthusiasts, given that it was likely not a cheap move to partner with those twelve programs.

Ultimately, Capital One’s strategy shift is a bit confusing. The bank has traditionally shunned miles/points hobbyists but now seems to be targeting them. Yet the value proposition the bank offers is likely not strong enough to sway true hobbyists, while the transfer partners are likely too abstruse for the average credit card holder. Is this a paradigm shift (there are lots of internal rumors about an upcoming partnership with TPG, suggesting the bank may be interested in going further down the path of competing on travel rewards) or simply misguided corporate decision making? If the former, maybe we can hope for a loosening of their application and approval restrictions. Only time will tell how this all goes for Capital One, but for now at least I won’t be rushing to sign up for any Capital One cards.

The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

7 comments
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7 comments

Jason November 14, 2018 - 10:45 am

Good post and perspective.

Reply
Jack November 14, 2018 - 11:26 am

Great post, covered what other blogs didn’t and wouldn’t say!

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Sam November 14, 2018 - 11:31 am

I think that this can have value for those in the points game IF they use hotels.com frequently. Even with the lower transfer ratio, the 10x capital one miles (transferred to 7.5 airline miles) is a better return than anything else you’ll find, and you get the free night after 10.

It’s not enough to make me change, however I think there is value to be found if you use it correctly.

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Andrew November 14, 2018 - 12:02 pm

I’m also surprised by this move. However, I might disagree with your assessment that the “value proposition the bank offers is likely not strong enough to sway true hobbyists.” The current offer of 75,000 points (first annual fee waived) is good for $750 travel or 56,250 airline miles, which is a decent sign up bonus. Recurring spend will effectively yield either 2% for travel or 1.5 miles/$ spent, which is decent, but also easy to replicate on other cards (such as AMEX EveryDay Preferred).

I have never considered getting a Capital One card until now. Now I am considering getting it for the sign-up bonus, but I would probably cancel it after the first year. It doesn’t make sense to spend $95/year for a points/miles earning ability that I already have via other cards.

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Kyle November 14, 2018 - 2:15 pm

I’ve had a lot of the same thoughts. I signed up for a VentureOne card over a decade ago (it was called something else back then) to avoid forex fees, which was a big deal at the time and probably not a benefit targeted toward the subprime crowd. Since then I’ve taken advantage of their “Capital One Cafe” semi-branches serving free or discounted Peet’s Coffee in pricey urban neighborhoods, which are a fantastic deal for us latte addicts who can afford to live (or happen to work) in places like San Francisco and Boston. Yet, just as Chase is trying to figure out how to cross-sell high margin wealth management services to a generation of young professionals who jumped on the CSR, Capital One is selling its brokerage division to E*Trade and effectively ending the possibility of one-stop financial services for those of us who have some affinity toward the brand. I suspect your theory that they don’t actually have a grand strategy is probably pretty close to the truth.

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Pete November 20, 2018 - 3:58 pm

Capital One Venture has been great for me…this only ads value. Cap 1 earns 2 miles for every dollar charged. Their miles can be used to pay for ANYTHING travel related. Example RT 1st class ticket DFW/SFO $590 or 100,000 AAdvantage miles. But use 59,000 Cap 1 miles and earn 6400 EQM & 9,000 AAdvantage miles (no AAdvantage earning if using AAdvantage miles). Cap 1 miles are transferable instantly to any other Cap 1 cardholder at no charge. Cap 1 also allows partial use too. Have only 50,000 miles but buying $1,000 ticket? Use your miles and pay only $500. Cap 1 customer service answers quickly with sharp folks in Richmond and Tampa. Cap 1 gives mile credit within a few days of making charge (as opposed to over 45 days with AMEX).
I carry Amex Plat (business fare discounts), Barclays (10% miles back when redeeming), Costco (4% gas 3% dining) , and AAdvantage Executive (AAdmirals club access & EQM) cards all good reasons but Cap 1 is most valuable day in day out.

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Mitchell Mitrani November 23, 2018 - 1:44 pm

pretty negative review

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