Capital One expects the integration of Discover Financial’s operations and tech stack to be costlier than anticipated. 

The bank spent $299 million on integration costs during the second quarter, up 171% quarter over quarter and 864% year over year, according to its earnings report published on July 22. The McLean, Va.-based bank has spent $440 million on integration since the acquisition was announced in February 2024.

“The integration is off to a great start,” Chief Executive Richard Fairbank said during the bank’s Q2 earnings call on July 22. “But as we have gotten more granularity on each of these efforts, we expect our integration costs will be somewhat higher than our previously announced $2.8 billion.” 

Cap One completed the acquisition on May 18. 

THE BIG PICTURE: The $490 billion Cap One is on a multiyear tech modernization journey to build better consumer-facing applications, Fairbank said, adding that the bank is in the 13th year of the transformation. 

“We have been rebuilding the company from the bottom of the tech stack up essentially building a modern technology company that does banking,” Fairbank said. “We are also the beneficiary of decades of investment in our data and analytics capabilities.” 

The evolving tech landscape, which includes AI, offers a significant opportunity for Capital One, Fairbank said. 

“Most companies will benefit from the transformation in how work is done that will be available through third-party AI tools,” Fairbank said. “But only the companies built on a modern tech stack and deeply invested in data will be in a position to reinvent their business model to put AI at the heart of operations, risk management and the customer experience.” 

Capital One is deploying AI in: 

• Fraud detection; 

• Managing credit risk; 

• Know your customer; and  

• Customer service. 

BY THE NUMBERS: In Q2, Cap One reported: 

• Net loss of $4.3 billion, compared to a profit of $597 million in Q2 2024; 

• Occupancy and equipment expense of $737 million, up 33.8% YoY; and 

• Net interest income of $10 billion, up 32.5% YoY. 

NOTEWORTHY: Capital One this week announced ProtectID, a real-time fraud detection tool embedded in the lender’s Dealer Navigator platform. The tool uses the bank’s proprietary fraud models and data combined with AI and machine learning capabilities to flag potential risks tied to consumer applications.  

The tool uses a soft pull to evaluate applications, then alerts dealers to suspicious activity, identifying what information is potentially risky and providing steps dealers should take, according to the bank. For the borrower whose application was flagged, the tool sends a verification link to allow the person to confirm their identity.  

“Fraud is on the rise everywhere,” Sanjiv Yajnik, president of financial services at the bank, said during a July 21 online Capital One roundtable discussion on the tool. “It’s a hard problem to crack.” 

As more consumers shop online, fraud has increased, Dylan Bullock, general sales manager of Grapevine Dodge Chrysler Jeep Ram in Grapevine, Texas, said during the discussion. The dealership piloted ProtectID for about seven months and provided feedback that helped create the tool, according to Capital One. 

“We have the emergence of many digital retailing tools, and customers are wanting to do more of the deal online,” Bullock said. “With that, we’ve seen an increase in fraud. We see it every single month. There are situations … some of which we prevent and some of which we aren’t always able to.” 

Capital One taps its consumer credit product data to build knowledge on fraud and inform its detection systems, Yajnik said.  

“With credit cards, there are transactions happening every single second of the day across the entire world,” he said, noting that the data can point to fraud rings at work.  

“We do billions of dollars of transactions daily. We map all the transactions to create links between different merchants and people, and we use machine learning and AI to bring that knowledge together so that the next time a customer is doing a transaction, we have a fair amount of certainty on whether that is a bona fide customer or not.” 

FUTURE LOOK: Through the acquisition of Discover, Cap One aims to migrate all its debit and credit cards to the payment network, Fairbank said. 

“We really want to work to move more volume there and all roads in that quest lead through investing in international acceptance and then a global network brand,” he said.

MARKET REACTION: Shares of Capital One (NYSE: COF) were down 0.90% from market open to $219.64 as of market close today. Capital One has a market capitalization of $140.48 billion.