Capital One’s cardholders continued spending in the third quarter while credit losses declined, giving the bank room to pursue two expensive strategic priorities: building more volume on the Discover network and investing further in generative and agentic artificial intelligence.
The Oct. 20 results showed that credit card purchase volume increased 11% year over year to $254.7 billion. CEO Richard Fairbank said the increase came primarily from legacy Capital One customers, while legacy Discover purchase volume was essentially flat amid the company’s temporary slowdown in Discover loan growth. Excluding Discover, ending card loans grew about 6%.
The figures indicate continued activity among Capital One’s card customers without a corresponding year-over-year deterioration in card credit.
Domestic card charge-offs fell to 3.98%, down 65 basis points from a year earlier and 73 basis points from the second quarter. Delinquencies stood at 3.74%, 15 basis points below last year but 35 basis points above the second quarter. Management said the sequential increase was consistent with normal seasonality.
Capital One released $250 million of domestic card reserves based on favorable observed credit performance, although it also gave greater consideration to downside economic scenarios related to geopolitical risks.
Elsewhere, the charge-off rate in the auto loans segment increased five basis points year over year to 1.59%, largely reflecting a shift in originations as Capital One’s subprime mix returns toward pre-pandemic levels. Auto delinquencies, however, were 35 basis points below a year earlier.
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Capital One Tests the Next Discover Migration
Discover’s network is moving beyond the initial integration stage. Global payment network transaction volume reached approximately $191 billion, up 25% year over year, primarily following the conversion of Capital One debit customers onto Discover.
“We’ve been conducting tests to help inform our strategy regarding which customers and products we target for moving to the Discover network and the timing of those moves,” Fairbank said during the call.
Capital One also plans to originate some new Capital One cards directly on Discover. Fairbank cautioned that the migration “is not going to be a big-bang thing like you saw on the debit side,” with the pace partly dependent on expanding network acceptance.
As for AI, management was asked whether Capital One was seeing revenue or market-share benefits from its investments. Fairbank specifically cited the arrival of generative AI in 2022 and agentic AI over the past year while arguing that their effects on banking will develop over time.
Capital One’s planned applications extend well beyond consumer-facing tools. Fairbank identified software development, credit marketing, risk management, fraud operations, servicing and cybersecurity as areas where AI could change operations.
“We know there’s a big investment imperative to take advantage of this,” Fairbank told analysts.
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