Capital one - Loan Processing

Introduction

Capital One, an American bank holding company, headquartered in Virginia, U.S.A was founded in the year 1995 by two young associates, Richard Fairbanks and Nigel Norris. This started when they discovered that some products in the credit card industry were being direct marketed and no firms were fully exploiting the power of statistical analysis and big data. After failing to pitch this strategy to over 20 banks, the Signet bank made then an offer to launch its Bank Card Division. Their first balance transfer product revolutionized the bank industry. In 1995 Signet spun off of its credit card division and became a publicly held Capital One. Over the years, Capital One was recognized as one of the largest issuers of Master Card and Visa credit cards in the world, with a global customer base of about 49 Million and managed loans totaling over $83 billion. Since its IPO in 1994, Capital One’s stock price had increased more than 1400% in 2005. However, in late July 2004, Rick Weis, the operations manager of the loan processing center at Capital One saw a decline in funded loans over the months. He was concerned if the upcoming marketing effort of a mail drop was a good idea and if his department was efficient enough to achieve the set target for the next month.

Loan Approval Process at Capital One- Analysis and Recommendations

The loan approval process at Capital one was inefficient and this was one of the major concerns for Rick about the success of the Mail drop effort. Exhibit 1 shows the flow chart of the process of loan approval at capital one. The success or failure of this process is dependent on the efficient use of the resources in order to reduce withdrawals and waiting time. It was noticed that over the past few months the company had funded significantly low loans than targeted. A good number of applications are observed to be withdrawn due to huge waiting time. The major challenges for Capital one is to reduce its waiting time, thereby reducing the withdrawals and extract maximum output from its employees. The upcoming mail drop effort was aimed to target 700 units of funded loans. In order to achieve this Capital One needs to understand the shortcomings in its loan approval process. The loan process begins with Interviews as the first step where in the interview associate calls the potential customer and asks them about their loan needs, suggests a range of products and loan terms such as interest rate on the loan. If the customer is interested, the associate follows a scripted questionnaire and enters all the details into the computer. In case of requirement of additional information, the underwriter is supposed to contact the customer and follow up.

The interviews on an average takes about 22- 24 minutes per application. It is recommended that Capital One starts an Online application for obtaining loan. A comprehensive form with