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- [00:01]
Leah Dean
Exchanges on the M and A and IPO landscape Exchanges on the dynamics affecting global trade. For the sharpest analysis on finance, business and the economy, count on exchanges the Goldman Sachs Podcast Listen now.
- [00:18]
Imani Moliz
Hey YMB listeners, I'm Imani Moliz for the Wall Street Journal. The show is still on a break, but today we're taking you inside the WSJ Future of Everything festival where I we recently sat down with Leah Dean, Capital One's president of banking and premium products. Because luxury is undergoing a bit of a makeover, we're diving into how the company plans to reach that next generation of consumers, why the benefits in your wallet are changing, and what all of this means for your next big trip. You'll hear our conversation after the break.
- [01:00]
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- [01:37]
Imani Moliz
Thanks everyone for being here. We're just going to dive in. So we've written a lot over the last two years about the premium card wars. It seems like all these credit cards are getting more expensive and Capital One is still a challenger in this space. Venturex has been out for about five years.
- [01:53]
Leah Dean
Five years, yes.
- [01:54]
Imani Moliz
So how are you differentiating yourself in this very crowded and competitive market? And where are you winning?
- [02:00]
Leah Dean
You're right, we're at Challenger. We introduced our first premium card venture X in 2021. So we're just coming up on that five year anniversary and you know, I think our perspective you've actually written about it is that premium cards have become increasingly and we saw it a lot last year in so many changes. The fees have gotten higher, the rewards have gotten more complicated, and we just have a perspective that the emerging premium consumer is busy. I think you wrote about Charlene and Eric in Ohio who were literally going out to a great dinner and then on the way home recording in a spreadsheet which credit they were going to use to help pay for it. We've tried to design something that is really simple, that doesn't kind of require homework to feel like you're getting your value. And then we've also really leaned into Differentiating the experiences that we build on the digital and technology side. So, you know, you see things like when we build a lounge, we're the first to, you know, roll out. You can see how busy it is before you walk all the way there. You can put yourself on a wait list. So when you get there, you can get right in. At our landing in LaGuardia, you can order food and have it delivered in under seven minutes from a Michelin caliber kitchen. So we're really just trying to see how can we design experiences that lean into what we think younger premium consumers want, which is valuing time as opposed to heritage.
- [03:23]
Imani Moliz
And particularly as it comes to attracting these Gen Z cardholders. Is it a zero sum game? Are you trying to convince people to switch from a different premium card to Venture X or you are just getting them to open a card in addition to the cards they may already have?
- [03:39]
Leah Dean
We see a real mix. Some people. Venture X is basically their first premium card. So we're positioned in a part of the market that we really love. So it's a $400 card and people can kind of trade up to basically pays for itself with one travel purchase. And it provides access to a thousand lounges and our own lounge network. So it gives you kind of those travel benefits, but at a price point that's still pretty accessible and straightforward. And we really like that position in the market. We thought it was differentiated when we started. I think it's increasingly differentiated as we've seen people raising fees by up to $200 over the last year.
- [04:17]
Imani Moliz
And I've also written about how it seems like credit card companies are becoming hospitality companies. Right. Like they're buying restaurant reservation companies or opening standalone lounges or even doing more in the concert space. You guys were out first in opening a hospitality concept with the Capital One lounges. So what was the bet you were making there? Yes, and how has that played out?
- [04:40]
Leah Dean
So I think the lounges came after our cafes that we opened in 2014. So that was probably the start of that journey. It was actually my first job at Capital One was actually creating the cafes. And it's still like a thing I'm really passionate about.
- [04:53]
Imani Moliz
How do you take that experience and up the ante to appeal to that premium consumer that you're targeting?
- [04:59]
Leah Dean
Yes, that's right. So the lounges definitely, I think, are a little bit of a step up from the cafe experience. The range of the food that's there, we design the experience. Like for example, LaGuardia we designed with Jose Andreas. And so all the Food is going to kind of be of a different, of a different caliber, but it shares kind of the same underlying DNA. But you know, the lounges obviously have a different kind of access policy where, you know, for the most part, you know, you need to have a VentureX card or you need to pay to get in, which is a little different than the cafes which are open to everyone.
- [05:30]
Imani Moliz
And when the premium credit card segment was kind of being invented, uh, the ideal customer or the target customer was this suit wearing business executive who was flying to Tokyo for a meeting. And now all of the credit card companies are increasingly targeting, let's call it a 24 year old traveling to go to a music festival.
- [05:50]
Leah Dean
That's very true.
- [05:51]
Imani Moliz
What is driving that change?
- [05:53]
Leah Dean
It's so striking. I think others have talked about it and we see it as well. If you look at consumers under the age of 35, that is the fastest growing segment within our business and premium is the fastest growing segment within our credit card business overall. And that consumer has very different needs and very different ways that they think about premium. They don't define luxury in the way that you just described of the executive flying to Tokyo. Not saying there isn't a part of the market to serve that consumer as well, but this is a consumer who, one of the things I think is most interesting is, is much more likely to also be an entrepreneur. So if you look at an older premium consumer, only about 15% of boomers have business like income is really a source of their wealth. But if you look at millennials, it's 40% and if you look at Gen Z, it's upward of 80% who actually aspire to have that. And so this is a consumer who has many different parts of their life and wants to, you know, integrate them wherever possible, take advantage of, you know, I may have a work trip, but I want to extend it by a couple of days to go to a great music festival or in our case it might be, you know, sit front row at the NCAA March Madness because we're the sponsor there and, and combine those things together. So those are places where we're trying to build digital experiences that allow people to merge these different parts of their life.
- [07:12]
Imani Moliz
Do you think that as people are earning more earlier in life, is this a pull forward of their money and net worth or do you think that's going to translate to higher net worth or higher spending long term?
- [07:23]
Leah Dean
I'm not sure, to be honest with you. I think what's is that there's this shift towards caring about experiences more than in previous generations. So this has been written about a lot. Right. But like it's just overwhelming. 80% plus people who would prefer kind of the authentic really lived in moment, whether that's at a concert or a trip over, maybe something like a material possession that might have been the standard previously. So that focus seems like there's a real difference generationally. But I don't think that we know enough yet to know whether or not you're just sort of pulling forward wealth or at least we're not able to see that right now.
- [08:00]
Imani Moliz
Are you finding that the perks that help retain customers so the ones that have the highest engagement, are those the same benefits that attract new customers?
- [08:08]
Leah Dean
The things that really drive engagement? If you use like our travel experience, for example, you're way more engaged. We just launched a standalone version of our Capital One travel experience last month. So when people start to experience that ecosystem, whether it's booking travel on the portal or going to a lounge, like just making use of the benefits, then those people follow like a different, different trajectory that we, that we really like.
- [08:32]
Imani Moliz
So on social media there isn't a whole ecosystem of these credit card creators that talk about how to optimize points. You, you talked about a couple I spoke with who has their spreadsheet that they're updating on the train to make sure they're using all their benefits.
- [08:44]
Leah Dean
Yeah.
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Imani Moliz
Is. Is that a customer that you're going after or is there a downside to this culture of gaming credit card points?
- [08:51]
Leah Dean
I think there's a consumer who really enjoys that and gets a lot of value out of it. And if you are tracking it, there's incredible value on the table from different credit card providers that people can tap into. I think we're designing more for someone who wants a simple, straightforward experience and wants to, you know, have, have access to great benefits but is like busy and doesn't have time to do that, that kind of thing. Venturex also has a 2% earn rate, so you're not even tracking like what categories you're spending on. You're just feeling good that you're getting rewarded for using your card every day. So yeah, I do think we really try to focus on the, the simple valprop, the simple experiences enabled by technology and our tech transformation. And that may be a little different than the ways that other people go about it.
- [09:35]
Imani Moliz
So we've seen a point of sale lending take off as buy now, pay later has gotten more popular. Yeah. And Capital One is also trying to get more into that checkout experience. With Capital One Shopping. Can you just walk us through the strategy there?
- [09:48]
Leah Dean
Yeah, so. So we're not buy now, pay later space specifically, but as you note, we have an offering called Capital One Shopping. It's a business that we acquired a couple years before the pandemic and has just grown tremendously. And it's essentially an extension on your browser. I love it. So, you know, like, if you guys want to go download it extension on your browser, it's also embedded in our app. It also has a standalone app where basically you get access to either making the best use of coupons or great offers from merchants. So it's really an integrated ecosystem where we can bring the power of our more than 100 million capital1 customers in putting in the intelligence that we have from understanding their transaction histories to actually bring them great offers that they really engage in, and then also to bring merchants new customers that they would otherwise not have gotten. It's a little addictive, I find. Once you start using it, it's totally free. It's also open and non Capital One customers. So it's really just an example of us trying to think about a customer problem that we can bring data and technology to solve in a unique way and deepen our relationships with customers.
- [10:55]
Imani Moliz
And where do you see the premium card market going next? What do you see the perks and rewards looking like five, ten years from now?
- [11:03]
Leah Dean
You know, one thing that comes to mind and talked about a lot today is just, you know, how. How AI is changing the whole world. And so we're obviously spending a lot of time thinking about that is a company that has already been focused on trying to use technology to build a better. A better offering. We're very much excited about what we can do using AI on the back of the flexible tech stack that we have to build. Take travel, for example. The travel booking experience has not really changed all that much in the last 20 years. When we talk to premium consumers, especially the younger ones, we find two thirds of them are already using AI planning tools to plan their travel. I mean, I've done it myself. Like, it's exciting, but it has some certain limitations. Like it doesn't take you all the way to booking. It doesn't integrate with your rewards ecosystem. You know, that's not maybe who you would rely on if you just, like, happened to me on Saturday. Your flight gets delayed and you have to, like, change all your plans. So we think there's an opportunity to bring the power of, of AI tools to the investments that we've made across lifestyle But I think travel is a particularly great example. And then building on the fact that we know what you spend on, know how you've traveled in the past, know your family structure, we might know your, your favorite rewards programs to actually deliver something that really transforms that experience in a way that hasn't been done before. So those are the, the areas that we're focused on to really, like, build better experiences that make people take a different look at us.
- [12:32]
Imani Moliz
As credit cards become less tangible.
- [12:34]
Leah Dean
Right.
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Imani Moliz
As the act of paying becomes less tangible. You're not swiping, tapping. I imagine maybe I'll just, like, look at something and be able to do
- [12:42]
Leah Dean
some visual recognition thing. Yeah.
- [12:43]
Imani Moliz
How do you make sure that you stay top of mind when they're no longer physically interacting with your priority?
- [12:48]
Leah Dean
I mean, I think you said it right. Like all these credit card companies are turning into hospitality companies. I think that is part of it. Right. Like in those moments, those highlight moments in your life, we want to be like, almost physically there or we want to be the partner that you're relying on to plan it for you. Not just your payment tool, but more than that. So I. But I think that's a question that probably all of financial services is going to have to grapple with over the next decade.
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Imani Moliz
All right. Those were all of my questions and I. We're at time.
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Leah Dean
All right. Thank you very much, Money.
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Imani Moliz
Thank you so much.
- [13:18]
Leah Dean
Thank you, guys.
- [13:28]
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