Banking Giant Capital One Enters B2B Software Industry With Launch Of New Business

Capital One has turned itself into a major player in America’s banking industry by competing in markets for everything from credit cards to auto lending. Now it has set its sights on the software industry too. Forbes can exclusively reveal that the banking giant, which has $434 billion in assets and more than 100 million customers, is launching Capital One Software, a business that develops and sells software products to companies scaling up their use of data and cloud computing.

The new venture, which has been created by Capital One’s CEO and founder Rich Fairbank, is based at the company’s headquarters in McLean, Virginia and has its own dedicated personnel as well as access to software developers in Capital One’s 12,000-strong technology team. Its first product, Capital One Slingshot, helps companies speed up their adoption of Snowflake, a popular cloud data platform, and manage costs associated with it.

Many other companies outside the software industry have hired armies of in-house developers to create mountains of code for internal use, but relatively few have commercialized some of the software they’ve built. NYSE-quoted Capital One joins a short list of businesses that includes The Washington Post, which sells its Arc publishing platform, and BlackRock, which offers its Aladdin data cloud to other investment managers.

Ravi Raghu, the head of Capital One Software, says executives at Capital One see its creation as a natural evolution of the overall company’s digital journey. “We’ve been talking of Capital One as a technology company for a while now. The best proof of that is [to become] a technology company that’s actually selling software. That innovation just runs in our DNA.”

Rob Alexander, Capital One’s CIO and a Forbes CIO Next List honoree, echoes Raghu’s view and underlines the scale of the opportunity the company sees ahead. “We’re still in the relatively early innings of enterprises moving to the cloud. We’re still in the early innings…as they get their data in order in the cloud so they can pursue things like machine learning and AI. There’s a lot of runway here for these markets to grow and develop.”

A fintech before the fintechs

Alexander is the architect of a long-term digital transformation plan that helped spark the idea for Capital One Software. Over the past 10 years, he has hired thousands of engineers to create software for Capital One’s own businesses and championed a strategy that has led the financial giant to close its data centers and shift its operations entirely to the public cloud, a process it completed in 2020.

The company’s obsession with technology goes even further back, dating from its early days in the 1990s and 2000s when it used its prowess in data management and marketing to help consolidate the highly fragmented U.S. credit card business. “Capital One was a fintech 20 years ago and continues to be one today,” says Jason Goldberg, a banking analyst at Barclays.

Under Alexander’s watch, the company has built numerous cloud-based software tools because it couldn’t find ones from vendors that satisfied specific needs. It now plans to commercialize some of them via its new business, starting with Slingshot, which Capital One Software claims can reduce the cost of managing workloads on Snowflake significantly and help eliminate data bottlenecks.

We’ve been talking of Capital One as a technology company for a while now. The best proof of that is [to become] a technology company that’s actually selling software.

Ravi Raghu, head of Capital One Software

Kaushik Patel, an executive at ThoughtSpot, a cloud analytics company that’s been using Slingshot for a couple of months, says the fact that Capital One is facing some of the same pain points using Snowflake’s platform as his own company helps make it an attractive partner even though the financial giant is new to the software business. Its scale and resources are also reassuring. “I would be more worried about [using a product from] a Series A startup…than I would using [one from] Capital One,” says Patel.

Raghu, who reports to Capital One’s chief enterprise services officer, Frank LaPrade, declines to reveal how many employees his new business has or what products it will launch beyond Slingshot, saying only that it will be guided by what it hears from customers. The fact that the banking giant’s years-long digital transformation journey has turned it into a kind of bootcamp for tech leaders who have gone on to be CIOs at other top American companies means Raghu has plenty of Capital One alumni he can tap for insights too.

Founder vision

Still, making Capital One Software a success will be no slam dunk. The markets the new business is targeting are big but they are also full of formidable competitors whose sole focus is on software and there are significant costs associated with things such as building teams that consult with customers to help them get the most out of the products they buy.

Capital One may also need to reassure investors, who have seen its share price fall by almost 12% this year to $127.86 at close of trading on May 31, that its move into the software business will not distract executives from its core finance ones, especially as the economy shows signs it may be tilting towards recession.

In response to skeptics, the company can point to the fact that CEO Fairbank has repeatedly taken it into businesses that have compressed margins and driven up costs in the short term, only to pay off handsomely over time. “Rich is a visionary,” says J.P.Morgan analyst Rick Shane, who has followed Capital One for 20 years, “and…having the confidence and success to support and invest in his vision is largely a function of those prior successes.”

CIO Alexander acknowledges the level of commitment that will be required to make Capital One’s latest venture a success. “We go into this with…humility about the challenge of building a software company, “ he says. “If you look at the average [enterprise] software business, the time it takes to get to $100 million in revenue is like five to seven years for the winners. We recognize that this is something we need to be in for the long term.”