The news: Capital One’s net revenues increased 23% to $15.4 billion YoY, per its earnings release.

• Credit card period-end loans increased less than 1%, to $271 billion.
• Domestic card period-end loans rose 1%, to $254 billion.
• Purchase volume increased 39% YoY. Excluding Discover, that figure stands at 6.5%.

State of the consumer: Capital One’s data suggested its consumer base is not facing acute financial distress.

• The 30-day delinquency rate sat at 3.5%, up on the quarter (3.32%), and down on the year (3.89%).
• Net charge-off rates were 3.16%, down on the quarter (3.24%) and year (3.27%).

What’s afoot: The effects of the Capital One-Discovery merger are still coming into relief, two quarters after the deal exploded the size and scope of Capital One’s business. Capital One conceded that integration costs are “somewhat higher” than expected, per the company’s earnings call, but maintained a target of $2.5 billion in “synergies.”

Looking forward, the issuer wants to mimic rivals in directing more investment to their premium cards. CEO Richard Fairbank said Capital One continues “to see good traction across our legacy card business including strong growth with heavy spenders, at the top of the market.” That also means trimming some of its exposure to consumers at the lower end of the credit score continuum.

Our take: If issuers continue to reorient their investments strictly to their premium offerings, subprime cardholders will become increasingly stranded for lines of credit from incumbents. And as it becomes harder to build credit in the first place, it becomes even harder for consumers to qualify for those premium offerings. 

This gives an opening for fintechs and buy now, pay later platforms to snag this population, as traditional lenders back away from credit-thin consumers in pursuit of wealthy spenders.

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