Loan Processing at Capital One Essay Example for Free

Loan Processing at dandy unmatched endeavorThis marketing effort, which was planned to take the form of a major mail drop, was designed to increase the pile of funded adds in active six weeks when potential customers startle returning these applications. It was stool to each iodine at Capital One that the operations of impart cognitive operationing would play a major role in determining if the upcoming mail drop would be a success.With 14 funded loans processed per tie in every month and a total of 25 accords on the team, the department does not have the capacity to handle the application mickle leading to our tar hire of 700 funded loans per month that we set following our increased marketing effort, ob performd one of the managers working for Rick, What we need is a signifi messt increase in staff. We also need to heavily set up in knowledge technology to further increase the point of intersectionivity of the existing staff.While it was clear that the aime d increase in loan applications would pop the question a serious challenge for the underwriters, there was no consensus on what actions should be taken. As was observed by one of the executives in arouse of consumer loans When I benchmark the returnivity of our underwriting team with other companies in the industry, 14 funded loans per associate per month is not a number we can be proud of. It takes about 3 hours of actual work to fund a loan, and that includes everything from the initial hearing to underwriting, quality inspection, and closing.We have 25 associates, that each works about 150 hours per month. So each associate should be able to process 50 applications per month, which gives us 1250 applications per month for the team. Even if we fund only every other loan that we underwrite, we would just need a little bit of everyplace condemnation to get 700 units funded. Several others at Capital One agreed. As it was put by one of the associates in charge of direct market ing Frankly, if you asked me, there seems to be a lot of potential for improving productivity in our processes.I am optimistic that our upcoming mail-drop testament lift productivity and utilization scores in the underwriting process since there will be a lot more work coming in. As the person in charge for operations management, Rick had mixed feelings about these comments. On the one hand, it was trus iirthy that his departments productivity metrics had not been stellar in the past. But his associates worked very knotty and were very capable. This case was developed all as the basis for class discussion.It is not mean to serve as an endorsement, source of primary info or illustration of effective or unproductive management. in all data in the case has been disguised. Rick was relatively new to this role, though he was a highly accomplished operations manager with a history of taking on tough challenges and producing strong results by redirecting his teams towards better prioritization, teamwork and focus on strategically important activities. As he looked all over the marketing forecast and the target of 700 funded loans for the beside month, Rick wondered what the upcoming mail drop would do to his department?And, more importantly, what could he do to help Capital One grow its consumer loan tune in the most optimal way? Capital One Background Information After graduating first in class from the Stanford chore school in 1981, Richard Fairbank joined Strategic Planning Associates (SPA), a strategy-consulting firm. In 1986, Fairbank met Nigel Morris, a fresh associate at SPA. While analyzing the operations of a major money center bank, the two reviewed the firms credit card operations. Both of them were struck by the enormous profitability relative to the rest of the bank.The young consultants concluded, Credit card game argon not banking they are all about collecting discipline on 200 Million people that youd never meet, and, on the basis of that information, making a serial publication of decisions about lending money to them and then hoping they would pay you back. Fairbank and Morris recognized the potential of customizing credit card products establish on characteristics and behavior of their customers and taking advantage of the technological advances in computers that offered companies the ability to record, organize and analyze bighearted amounts of customer data.They realized that few products in the credit card industry were being direct marketed and that rase fewer firms were fully exploiting the power of statistical analysis. Fairbank and Morris were able to convince the bank to run a test using this strategy. The test worked remarkably well, however, the bank was unwilling to adopt this new strategy. Convinced that they were onto something really big, the two pitched their idea to more than 20 national retail banks before Virginia-based Signet curse invited them to launch its Bank Card division.Over th e next several years, Fairbank and Morris ran thousands of statistical tests and eventually introduced the first balance transfer product in 1991 that revolutionized the credit card industry and saved a struggling Signet Bank. Four years later, in 1995, Signet spun off its credit card division to create the publicly held Capital One. Recognized for its innovation, customer service, information technology, and financial management, Capital One now is one of the largest issuers of Master Card and Visa credit cards in the world. Today, the companys global customer base is close to 49 Million with managed loans totaling over $83 Billion.From its IPO in 1994 to 2005, Capital Ones stock price had increased more than 1400%. In recent years domestic diversification has become a primary component of Capital Ones strategy. After going public, the company progressed on geographic and This case was developed solely as the basis for class discussion. It is not intended to serve as an endorsement , source of primary data or illustration of effective or ineffective management. All data in the case has been disguised. product line expansion through organic growth in credit cards and a series of acquisitions in non credit card caperes.In 1998, the company acquired Summit Acceptance Corporation, an automobile loan provider. In 2001, it acquired the nations largest online provider of direct auto loans People First, and a leading provider of pay solutions Amerifee. The acquisition of Onyx Acceptance Corporation made Capital One Auto Finance the second-largest independent auto lender in the United States. The company also acquired Kansas City-based eSmartloan, an online originator of folk equity loans and mortgages Hfs Group, a home equity loan broker in the United Kingdom and InsLogic, an insurance brokerage based in Tennessee.A number of these diversified businesses along with some organically grown businesses reside in the planetary Financial Services (GFS) organization o f Capital One. The Loan processing center is one such business that supported a variety of loan products such as small business loans, Line of assign and Jumbo loans. The Loan Approval Process In the division in charge of consumer and small business loans, the marketing department solicits potential customers through direct mail and/or email campaigns, that highlight the loan product features and specials of various products that are offered by Capital One.These campaigns, which are typically carried out at a nationwide level, have an information card that can be returned by the customer. The customer uses this card to provide information concerning their name, the type of loan they are interested in and the phone number/time regulate that is best to reach them. Customers who respond by sending this information back enter the process and are referred to as an App. Each App flows through a process that consists of five steps Interview, Workflow Coordination, Underwriting, Quality authority (QA) and Closing.Exhibit 1 shows the process flow with a brief description of the activities and the number of associates in each role. Interview The interview step consists of seven associates who call the telephone number specified on the information card. On a typical day between 200 and 500 potential customers are called depending on the incoming volume of customer requests. Federal privacy regulations require that financial institutions can speak about the loan only to the person who actually requested the loan. Hence, if this person is not home at the time of the call, the call has to be repeated at a later point.During the call, the associate interviews the applicant about her loan needs. Based on the customer needs, the associate offers a tend of products to the customer and the loan terms such as the maximum loan amount and the interest rate associated with each product (usually a range of interest rates is provided). This case was developed solely as the basis for class discussion. It is not intended to serve as an endorsement, source of primary data or illustration of effective or ineffective management. All data in the case has been disguised.If the customer is interested in one of the products, she will start an application process with the associate. The associate follows a scripted questionnaire and enters the information being provided by the customer into a computer system. The interview associate sets the expectation with the customer on the next steps if additional information is necessary to complete processing and approving the application, an underwriter will get in touch with the customer in 2-5 business days to get the necessary information.If all the information is complete and accurate, the applicant will receive a phone call from an Underwriter in approximately 5-10 business days outlining the next steps in the closing process. Exhibit 2 summarizes some sample data that was collected over the course of a week. The Exhibit shows it takes on average 22 to 24 minutes for an associate to process one extra app. This includes the time the associate spends talking with the applicant. It also includes the time it takes the associate to reach the applicant.