The Huffington Post
June 22, 2007
Chris Kelly: Das Capital One
Hi, welcome to Target. How can I help you today?
- I want to return this $29 DVD player.
Oh, it's you again.
- Yeah, and I want credit for this $29 paper shredder, too. I know
that identity theft is my problem -- you certainly can't blame the
credit card industry -- but I tried to feed it a week's worth of
offers from Capital One and sparks flew out of it and set my home
office on fire.
Well, at least the fire destroyed the junk mail.
- Uh-huh. And my tax records, and all my books.
You need a bigger shredder.
- I need Capital One to stop writing me every day. I'd like to meet
Mr. Capital One and push him down some stairs.
You and everyone else. Did you know credit card companies mailed six
billion offers in 2005? That's 50 for each household in America.
- Well, nine of them must not get any, because I get theirs. What's
wrong with Capital One? If I wrote a stranger five times a week they'd
get a restraining order.
Really?
- Geena Davis. Back in college. It was a misunderstanding.
Don't take it personally. Capital One doesn't have a creepy crush on
you. It's just flux quantization.
- It wasn't a crush. I admired her work. And what the hell's flux
quantization?
Flux quantization is a quantum phenomenon in which a magnetic field is
quantized into flux quanta.
- Oh, of course.
Critical point phenomena. Happens with superconductors. Discovered at
Stanford back in the sixties, by this physicist named William
Fairbank.
- So?
Brilliant man. Pioneer in condensed matter physics and phase
transition related critical point phenomena
- Wha-huh?
The study of the point between when something is one thing and when
it's something else. The space between. The transition. The changing
point. The flux. Get it?
- Maybe I'll just go to Best Buy.
No. Listen. Back before Capital One, there were just two kinds of
consumers: People who could afford credit cards and people who
couldn't afford credit cards. The problem was that the people who
could afford credit cards already had them, and the people who needed
them were deadbeats.
- What does that have to do with flux?
The guy who started Capital One imagined a third kind of person --
someone who could almost afford a credit card. A virtual credit card
holder. Something between a good risk and a social parasite. Someone
who couldn't pay off the principal on a card -- only the interest.
- So?
That person -- that fluxoid -- is actually a better customer than
someone who can really afford a card. Because interest and penalties
are where the money is.
- You smoke a lot of dope, back in the break room?
If you have enough data -- if you can find the exact right people --
you can make higher profits lending money to someone who can't pay you
back than someone who can. As long as they can virtually pay you. In
2001 -- not the movie, the year -- more than one-quarter of the lowest
income families spent over 40% of their income on debt repayment.
- But why is my mail always from one company - - Capital One?
Because the machine feeds on information. Capital One knows that data
is power. Even when you don't respond, you're still telling them
something. You're telling them what doesn't work. They invented the
teaser rate, and honed it through trial and error. They did another
test, dealing with customers who threatened to switch cards, and
offering them computer-generated random new rates -- or nothing at
all. They conducted 14,000 different tests in 1997. In 2000, they
conducted 45,000.
- You're pulling this out of your butt.
And my Stanford alumni magazine. Capital One isn't just making huge
profits, annoying you, and killing trees for paper. It's probing. It's
learning.
- Wow. You can learn a lot, talking to a paranoid loon. Thanks for
telling me about fluxons, too. Now I'm going to edge off slowly...
You're welcome. By the way, you know that guy I told you about,
William Fairbank? The father of quantum flux? Back in the '70s, NASA
hired him to prove the general theory of relativity? Headed the
Gravity Probe B Project and designed the Lambda Point Experiment for
the space shuttle? The one who was fascinated with changes in the
property of matter at a phase transition critical point?
- Sorry... can't hear you... busy backing away...
His son is Richard D. Fairbank. The founder and CEO of Capital One.
--
And... scene.
Well, we've had a lot of fun today. But, you know, consumer debt is no
joke. The median household income in America is $46,000. The average
credit card debt is $9000. Someone should probably do something about
predatory lending -- and things like universal default, and the traps
and small print in credit card statements.
But it probably won't happen any time soon, even if the good guys win
the next election. According to the Christian Science Monitor,
financial and credit companies made $7 million dollars in campaign
contributions in 2006. Commercial banks made another $25 million in
contributions to candidates and both parties.
--
Something my children figured out after I broke the shredder:
I probably don't have to shred the applications.
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