Capital One announced it will be cutting hundreds of jobs in its retail banking branches including approximately 500 assistant manager positions. Capital One also consolidated their market regions from 14 to 8 in order to reduce the complexity and get rid of an entire layer of management.
I am not at all surprised by this announcement. As a former employee who left 6 months ago I knew that this move was going to happen sooner or later. Retail Bank infrastructure has been a leading cost for the bank ever since Capital One bought its first bank in 2005. Ever since overdraft fees income was removed, all banks have been under pressure to reduce the costs of their branch network and find new sources of income. One new source of income has been service fees for checking accounts. Over the past 2 years nearly every bank has either completely gotten rid of free checking or have put huge restriction on free checking accounts including minimum deposit requirements.
Capital One has been trying to evolve into a more innovative, future oriented bank for some time. Capital One Direct was launched nearly a decade ago in order to provide funding for their credit card portfolio. In resent years there has been a large push to grow Capital One Direct, including the launch of online checking. Capital One now offers free online checking through the direct bank for customers who do not live in their retail branch footprint. The direct bank is the second largest online bank in the United States, second to ING Direct which was acquired by Capital One during 2011. The acquisition of ING puts Capital One miles ahead of the competition in terms of internet banking.
In addition to Capital One's online bank, in 2011 Capital One launched new model banking. A hybrid of traditional branch banking and online banking. They have already opened up branches in several cities and plan to move to more areas over the next few years. The theory of new model banking is that there is a subset of customers who rarely use a branch and would be willing to do most of their transactions through the online bank and only visit a branch on rare occasions. This will allow the company to cover an entire metro area with only 4 branches instead of hundreds. The cost savings will allow Capital One to offer better products and higher interest rates. I strongly believe that this model will be very successful and will help Capital One Bank to become the most profitable bank in the United States. The banks that cling to a dense branch infrastructure will eventually put themselves out of business due to the monstrous operating cost associated with maintaining so many locations. In the future I see Capital One continuing to close underperforming branches and expanding their new model bank.
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