Capital One’s commercial cards strategy zeros in on real-time capabilities

Capital One is contemplating how it can use data management technology, the cloud, APIs and artificial intelligence to meet the needs of middle-market businesses that increasingly are turning away from paper checks toward digital payments. According to Raj Dutt, head of product strategy for commercial card at Capital One, there are about $15 trillion in payments by check made by commercial entities each year. Of the $8 trillion in payments made annually by middle-market companies -- meaning companies with $10 million to $500 million in annual revenues -- anywhere from $2 trillion to $5 trillion is by check, but that's starting to change. "What we find is that companies are starting to look for digital solutions that are more integrated with their systems and much simpler to use, and that is really where we are focused," he said. The market opportunity in commercial payments isn't much of a secret, especially as the space is becoming crowded with fintechs like corporate card startups Brex or Stripe , which provide online payment processing for businesses. Whereas Brex targets specific sectors, like tech startups, e-commerce companies and budding life sciences companies, Capital One targets the entire spectrum, particularly in the middle-market range. "We are completely retooling our architecture from the ground up across the company to adopt these modern technologies so that everything we do, as far as possible, is built in the cloud and, as far as possible, built to be real time," Dutt said. "It's not always possible because some of the sub-systems and sub-processes that are there are often not real time, but we try to get as close to real time as possible. That's an investment that we're making across Capital One." As Bank Innovation previously reported, Capital One is in the midst of a multi-year digital transformation effort that its chairman and CEO Richard Fairbank has said will include the bank’s complete exit from its data centers into the public cloud by the end of 2020. Asked what Capital One is doing to offer commercial card clients more insights, transparency and control, Dutt said the bank is trying to make sure its clients "have all their data accessible, ideally in real time," through user-friendly interfaces. The bank also is investing in AI-enabled architecture to enrich how the bank can prompt actions or predict events, he noted. "With the massive reduction in the cost of data storage and the incredible speed at which we can process things in our system, it enables us to do things that are just unimaginable," Dutt said. "Over the course of the next five to 10 years, the impact of this across all industries, particularly banking and payments, is going to be huge because we are going to be able to take the information that is flowing through the system and use it to do things that today is in the realm of science fiction." Also see: Capital One acquires BlueTarp in appeal to business clients Capital One isn’t looking over its shoulder at the fintechs that are starting to carve out their own slices of the market, Dutt claimed, although he noted the bank has an "opportunity to completely change the way banking works. Our goal is actually not to look to our competitors, although we obviously look to our competitors to understand what they're doing," he said. "Our goal is to deliver on the promise of what electronic payments could be, and that's what we've set our sights on. We're not really trying to figure out how to be better than the next person. If we are right and we solve problems in a way that users love, we believe that we will win the market anyway." Gilles Ubaghs, a senior analyst with Aite Group 's wholesale banking and payments practice, said big banks certainly are taking note of the fintech firms that are entering the commercial card space, securing tighter data integrations with their clients and racking up high valuations. It wasn't even that long ago that banks were selling off their commercial card portfolios, he noted. "They'd sell them off to third parties to manage kind of a co-branded card and that's completely gone out the window now," he said. "A lot of banks are now starting to bring this sort of thing back in-house because they recognize the importance and growth potential in the market." As more companies come online to commercial cards, for a wide range of purposes, there's a real opportunity for banks and fintech companies alike. "There's a huge demand from the lower end and middle portion of the market, which historically has not been met, but that appetite's growing enormously," Ubaghs said. Brex CEO Henrique Dubugras has often touted his firm's technological advantages over traditional firms that are married to their old systems, but Ubaghs said it's only a matter of time before banks and legacy payments companies bite the bullet and make the necessary investments. "Modernizing and updating that can take a while, but this is something traditional players are looking at and I'd expect a lot of developments on all sides over the next few years," he added.

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