Tech labor costs are an “elephant in the room” for technology companies and banks.

While that’s true for Capital One, the $432.4 billion bank may face “more of a headwind” with regard to the tech talent shortage, CEO Rich Fairbank said during this week’s earnings call.

“I want to savor that for a second,” Fairbank said. “One of the big things we’ve done in our tech transformation is bring … in-house engineering talent at scale, and a lot of companies do a lot of outsourcing of that.

Capital One has a large engineering team and related departments, he added, noting that the McLean, Va.-based bank is a destination for tech talent.

“We are continuing to move up the tech stack in terms of where our investments are and that’s a wonderful thing because the closer you get to the consumer, and the top of the tech stack, the more of those opportunities directly can be capitalized in the marketplace,” Fairbank said.

Fairbank questioned how long the current tech talent shortage can last, calling it “the biggest imbalance” he’s seen in three decades.

Fintechs push banks to modernize

The CEO also commented on the role fintechs are playing in modern financing, saying they are pushing banks to transform.

“One of the most successful parts of fintech has been the platform companies building the shoulders for other fintechs to then stand on and build their business — so the ability to enter businesses and move quickly and have modern technology is really striking,” Fairbank said.

“The fintechs are also unregulated … so there’s a whole vector there in terms of some of the things they’re doing and some of the ways that they move and operate that wouldn’t be consistent with the banking side of the business.”

One reason banking as an industry has lagged in technology transformation is due to regulations, Fairbank suggested, adding that Capital One does have some advantages over fintechs.

“We have a lot of benefits a lot of fintechs don’t have, including a gigantic customer base; a national brand; three and a half decades of underwriting experience; an unbelievable amount of data that we have collected; and have, through our tech transformation, built a very sophisticated and comprehensive way to manage big data and machine learning in real time to create opportunities to be at the forefront of how banking is being transformed,” he said.

Auto Navigator

The success of the bank’s Auto Navigator tool is one example of the bank’s technical prowess, Fairbank said. Auto Navigator allows car buyers to pre-qualify for financing with no impact to their credit score.

He noted that the tool shows “the differentiation that Capital One has created in a tech-based, information-based, machine learning-based product. The Auto Navigator and the real-time underwriting of any car on any lot in America in less than a second is a manifestation of that.”

Capital One’s fourth-quarter net revenue increased 4% to $8.1 billion. Meanwhile, net income was down 22% from third quarter to $2.4 billion in the fourth quarter. That was also a decrease of 5% from the previous year’s fourth-quarter income of $2.6 billion.

For 2021, total net revenue increased 7% YoY to $30.4 billion while total non-interest expense increased 10% YoY to $16.6 billion.

Tech spend

The bank’s communications and data processing — an indicator of technology spend — was up 11% YoY to $326 million in the fourth quarter. The total for 2021 was $1.3 billion, a 4% rise over 2020.

Portions of technology spend may also be categorized under “professional services,” which increased 10% in 2021 to $1.4 billion, as well as “occupancy and equipment,” which decreased 5% in 2021 to $2 billion.

Shares of Capital One Financial Corp. [NYSE:COF] were trading at $145.31 as of 11:23 a.m., up .31% from market open.

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