After five years experimenting in the UK, Capital One, the Visa and MasterCard credit card specialist, is getting ready to invade Europe.
The UK was used as the testing ground to see whether Capital One – which had already experienced success in the US – could be spun off in Europe. Nick Carter’s recent appointment as Capital One UK’s head of legal coincides with the European expansion. He says: “Capital One identified a market bigger than the US, and the UK was an appropriate bridge to access that market.”
Carter is the only lawyer in the five-strong team charged with devising a strategic vision for Europe. The others are the heads of finance, IT, operations and marketing. At this stage Capital One can only reveal that it is pursuing a “controlled growth” into several European countries.
However, Carter says that the executive board aims to “direct the UK business model across the rest of Europe”. Meanwhile, the company’s US operation is managing development plans for its existing outlet in South Africa.
Capital One aims to hire an in-house lawyer in France, while the UK plans to take on six more lawyers before the end of 2001, bringing its total to 16. Legal work for the French operation, which started in early 2000 and focuses on the payment credit market, is handled by the UK office. Carter is responsible for hiring the legal teams in Capital One’s offices.
But it is no easy process for Carter. “We are working with business people who are analysing the markets we are interested in, as well as the funding, tax and corporate structures we are fitting ourselves into,” he says. “We’re directing the UK as a model for the rest of Europe, [while considering] whether we can transfer our consumer credit option to a country which has different regulations and laws.”
One of the company’s principal external advisers is Clifford Chance, which Capital One has been outsourcing work to since 1999. Although he gives no figures, Carter says that the cost of hiring Clifford Chance involves a “reasonably significant expenditure”. The firm provides advice relating to banking products and structural financing.
The worlds of partnerships, acquisitions, banking, finance, securitisation, compliance and consumer credit are some distance from Carter’s previous role at Freshfields Bruckhaus Deringer. He worked at the magic circle firm for 18 years, and as a partner specialised in intellectual property (IP), IT and Science Law, before joining Capital One UK in December 2000.
Carter welcomed the opportunities arising out of Capital One UK’s expansion plans, and as one of the founding members of Freshfields’ IP/IT department, he has plenty of experience. But he says that Capital One offers even greater challenges. “I wanted to have a much wider scope than just being a service provider and Capital One is multi-faceted from the point of view of different geographies, products and business.”
Besides offering credit cards and savings accounts, the company runs a car loan and lease operation and has telecoms interests. In 1996, Capital One UK was established to offer Visa and MasterCard credit cards. The size of the cards’ interest rates vary, ranging from zero interest to 9.8 per cent flat rate, and up to 19.9 per cent for higher-risk clients. The latter is targeted at people who have been financially excluded from mainstream banks because their credit rating is bad.
Carter says: “Our risk analysis is very good so our losses are very limited. We have an established way of taking on the customers that others would reject.”
Capital One claims to be one of the fastest growing credit card issuers in the US, and during the last decade it claims to have been responsible for pushing down credit card interest rates. Carter points to Capital One’s low-rate balance-transfer scheme as having “revolutionised” the credit market as it pushed down interest rates from around 20 per cent to 12 per cent.
Capital One is unique in that it does not have a high-street presence and specialises in credit cards. Consequently, its views on regulations differ to the average UK bank. For instance, it is only now in the process of joining the Banking Ombudsman Scheme, while it has decided not to sign up to the Banking Code. A Capital One spokesman says: “The code is optional and far more aimed at high street banks.” But the company is preparing to join the British Bankers’ Association.
Capital One is clearly a forward thinking company in terms of its products and its lawyers have to keep up. Carter says: “We’re constantly innovating and testing new products. Often there are complex methods involved in how the product is put together, so lawyers work to ensure that the product is compliant with the Financial Services Authority and consumer credit regulations.” The same innovation extends to its European expansion plans.
No doubt the workload is fairly intense for Capital One’s 10 in-house lawyers, who include Vicky Mitchell, who oversaw the UK legal function until Carter’s arrival. Recent deals include processing the Sportscard Group’s credit card, and a recently affiliated market deal with affiliate marketing company Commission Junction, which uses new methods to market on the internet.
The UK office also deals with legal work from the French office, which has no in-house capacity but plans to build a legal team. Carter says: “When offices reach critical mass, they employ in-house teams.”
Capital One has a policy of having in-house lawyers because they are best placed to give advice allied with business strategy. But since 1996, Capital One UK has been outsourcing work to Denton Wilde Sapte. The firm advises on issues relating to developing patent partnerships, joint initiatives and commercial collaborations. Capital One has also used Browne Jacobson, Eversheds‘ Leeds office and Freethcartwright in Nottingham.
Carter does not want to give details on why particular firms were selected, just saying: “We choose all our suppliers on merit and who we consider to be the best fit for the job.”
The company’s decision not to use Freshfields, considering Carter’s connections, may come as a surprise for some. But in a previous interview with The Lawyer Carter said: “I need to have an arms-length relationship with our advisers, so I think that to instruct Freshfields would be unbalanced,” (26 March).
Carter’s arrival from Freshfields is only the first stage in the expansion of Capital One UK’s in-house legal team. And his target is to get the right team in place to coordinate the company’s expansion into Europe. We can certainly expect to hear a lot more of this company.
Head of legal
Capital One UK
|Organisation||Capital One UK|
|Sector||Credit cards, savings, insurance|
|Legal capability||Ten (due to rise to sixteen)|
|Head of legal||Nick Carter|
|Reporting to||President and chief operating officer Nigel Morris, and his US counterpart John Finnean|
|Main location for lawyers||Nottingham|
|Main law firms||Browne Jacobson, Clifford Chance, Denton Wilde Sapte, Eversheds, Freethcartwright|