Loan Processing at Capital One, Essay Example

Executive Summary

This paper examines a new marketing strategy of Capital One’s for its loan processing center, regarding response to its quarterly market forecast for the year 2004. The new marketing strategy is being put into place to help offset the impact of a decrease in loan funding for the past several months, which is below Capital One’s targeted loan funding goal. The decision was made to develop and implement a direct marketing campaign to promote the increase in volume in the loan processing center over a six-week period of time. The marketing strategy used was a mass mailing (or major mail drop) campaign (Immaneni and Terwiesch).

An effective marketing strategy is essential to ensuring that a business is managing its operations effectively in a way that maximizes profit potential. However, it appears that the loan processing center at Capital One may have been mismanaged in previous months or perhaps its marketing goals were not on target due to unforeseen activity in the marketplace, such as shifts in the economy. A declining economy can weaken the lending industry (Kwan); therefore, it may not be Capital One’s fault that their lending business was low for the past several months. However, it is clear that Capital One must take charge of the situation and make efforts to get its loan funding back on track to increase sales volume in the loan processing department. The mail drop marketing strategy effort will be managed by Capital One’s new operations manager, Rick Weis, and he is targeting six weeks after the mail drop to increase loan funding volume to many of the targeted customers returning their loan applications received in the drop campaign.

As with any marketing strategy and campaign, it is important for the manager to monitor each step of the process to ensure that targets are met and goals are achieved. Mr. Weis will be monitoring the following three areas of the process to ensure a successful marketing campaign:

• ensuring enough associates are working in each process step
• identifying any opportunities to redesign the loan processing operations department
• ensuring current performance metrics are appropriate.

Following is Capital One’s company overview and analysis of its loan processing center’s situation and a description of the marketing strategy, as well as recommendations for capitalizing on the marketing strategy efforts in the best way to promote more loan funding for Capital One.

Company Overview

Capital One, as a credit card issuer, was founded in 1995 and is now the largest Master Card and Visa Card issuer in the world, with more than 49 million customers. In addition, Capital One manages more than $83 billion in loans and its stock price increased more than 1400% from 1994 to 2005. Capital One’s success in the loan industry has been due in part to domestic diversification in the market, as its main marketing strategy. This strategy included expanding its product line, organic credit card business growth, and acquiring non credit card businesses, such as Summit Acceptance Corporation. Summit was a loan provider for automobiles and Capital One acquired this company in 1998. Capital One acquired another auto loan company called, People First and a financing solutions company called, Amerifee, both in 2001. These and other acquisitions positioned Capital One as the second largest lender for auto loans in the United States. Additionally, Capital One went on to acquire other businesses such as online home loan and insurance companies in the United States and the United Kingdom to open its Global Financial Services (GFS) area of its business. This was the beginning of the loan processing center, which offered a diverse list of loan products for customers (Immaneni and Terwiesch).

Analysis

As stated, Operations Manager, Rick Weis, will be managing Capital One’s new marketing strategy as a major mail drop to existing and potential new customers. This will require the efforts and input of everyone in the operations and loan processing departments. The target goal is 700 new loans funded monthly after this mail drop marketing effort is implemented (Immaneni and Terwiesch).

Challenges include placing an extra load on the loan processing underwriters and other staff in an effort to process all of the extra loan applications that will come in from the mail drop. However, current processing statistics show that the loan processing center has only 25 associates (8 of which are underwriters) and only 14 loans are funded per associate each month, and each loan takes approximately three hours to fund. The loan process consists of receiving the application, initial customer interview, underwriting, quality inspection, and closing. Analysis shows that the loan processing department’s productivity metrics are low, which is partially due to inefficiencies in processes and not necessarily the lack of employee effort or ability (Immaneni and Terwiesch).

The first solution to be implemented is the major mail drop, which will increase loan applications through the company’s current loan approval process. The mail drop will solicit potential loan business by offering potential new loan customers specials or discounts on Capital One loan products. When customers return their applications, they are put through the loan process, as described above.

Successful applications are distributed to underwriters by the Workflow Coordinator at the beginning of the workday. Each underwriter manages a work in progress inventory (WIP) and each underwriter is compensated according to his or her level of production. On average, underwriters have 20–50 WIP applications at any given time. Successfully underwritten applications are then sent to the quality assurance department, and then from there the application goes to closing (Immaneni and Terwiesch).

The loan approval process is time-consuming, as it involves a lot of paperwork and administrative work, fact checking, information seeking, and data gathering. In addition, a loan application must past several approvals at each step of the process to get to closing.

Recommendations

Recommendations for improving the loan process and efficiency in the loan processing department include ensuring enough associates are working in each process step, and if not, determining what can be done about it. This is something that has been raised in meetings with the operations manager.

Another manager stated that the loan processing center needed to increase staffing. This is a good way to increase productivity in the department because, as determined, staff is low with only 17 administrative associates and 8 underwriters, for a total of only 25 associates. To put this into perspective, a consumer loans executive calculated that the 25 associates work approximately 150 hours per month each on loans and should be able to process 50 applications each month, instead of only 14. He states this would equate to 1,250 applications processed per month and even if only half of those were funded, it would equate to 700 loans funded per month—with overtime of course. Therefore, it is determined that there are either not enough associates processing the 14 loan applications per month, or the associates that are there are not working to their full capacity. A solution would be to implement more training, increase quotas, and bring on a few new associates to increase the volume in the department.

Another recommendation is for identifying if there are any opportunities to redesign loan processing operations. One associate in the meeting commented that productivity processes that associates deal with are not efficient, which leads to slow processing times on their part. The suggestion is that it is not employees not working efficiently, but that they are doing the best they can do with what they have. One manager commented that the company should purchase more information technology to make processes more efficient. This is probably the best solution to the problem. Streamlining and automating as many processes as possible will result in more productivity for the department. This is particularly true for the administrative parts of the process, as these often take up a great deal of time. Capital One should invest in better programs and perhaps more proprietary software solutions to automate more of its processes.

Another recommendation covers ensuring that current performance metrics are appropriate.  It has been suggested that possibly part of the problem in the loan processing department is low performance of associates. A solution to ensuring this is not the case is making sure performance measurements are efficient. Each associate is measured by his or her productive to paid hours (PTP), which calculates logged hours to total paid hours ratios. The goal is 65% for the department and for each associate. The remaining 35% of time is charged to unproductive time that includes vacation, sick time, meetings, etc. In addition, a quarterly incentive payout is included in the metrics. Accuracy and volume is also measured.

These performance metrics are appropriate, as they cover every aspect of the processing cycle and they cover all areas of each associate’s and the department’s time, both productive and non-productive. However, with the implementation of new information technology, additional training and a few new hires, as suggested above, these metrics should result in better results.

Conclusion

Based on this analysis, it appears that Capital One’s loan processing center must streamline processes, restructure associate quotas, redefine department goals, and hire more associates prior to implementing its major mail drop marketing strategy. This will be the best course of action to be able to meet the demand from the volume of applications that will come in, and to increase the success of converting those applications into funded loans. This is in light of the low productivity scores, which raises questions about hiring more people. However, the company should not hire many more people, just a few more people, while making processes more efficient to help the current staff be more productive and efficient.

Works Cited

Immaneni, A. and C. Terwiesch. “Loan Processing at Capital One.” Case Study. Wharton University of Pennsylvania, 2007. Print.

Kwan, S. H. “Financial Crisis and Bank Lending.” Working Paper. 2010. Print. <http://www.frbsf.org/economic-research/files/wp10-11bk.pdf>.