Apple Pay

Capital One CEO: Apple Pay Tokens “A Game-Changer”

Capital One Financial CEO Richard Fairbank spoke Thursday (Oct. 16) to financial analysts about how he sees Apple Pay pushing security improvements in payments, something he termed “a game changer.”

He said the iPhone’s new secure element and it’s tokenization is “a very important breakthrough” in that “card numbers are not going to be embedded inside the secured element on a phone. Instead, one-time single-use or a few times use tokens will be in a sense, sent to the phone. So that the risk of extended fraud is massively reduced.”

But he saw Apple’s effort as a catalyst for moving various existing industry security efforts forward.

“Visa and MasterCard are creating a vault and there is other activity that’s going on of some alternative approaches, as well just in the nature of an evolving industry. I think people aren’t leaving single solutions as the only way to go,” Fairbank said. “But whether it is coming from Visa and MasterCard or from a banking industry, vaults are really actually from individual issuers vault. There’s work going on in all three of those dimensions, but the big story there is, this tokenization is a game changer in terms of security.”

Fairbank also cited peer-to-peer lending–enabled by mobile payments–as another major trend that is shaking up payments.

“We have a great interest in all of the innovations that are coming out of the digital space. Peer-to-peer lending is clearly picking up quite a bit of steam in the startups and in the digital space. It is our view that all of the opportunities in the digital space–and we pretty obsessively study those, including a bunch of lending ones–the peer-to-peer lending opportunity is not one that’s at the top of our list in terms of the opportunities,” he said. “When you think about peer-to-peer lending and all the risk issues associated with that, all the regulatory environment we live in and kind of the things that we have learned and – that I personally, for example, have learned in over two decades of building a consumer lending company–there are a lot of challenges and a lot of risks in there. So what we’re going to do is probably be a very eager observer and we’ll go from there.”

The backdrop for this conversation was Capital One releasing its third-quarter earnings Thursday (Oct. 16) with results that showed a slight decrease in net income since last quarter.

“Capital One delivered another quarter of solid results for the company and across our businesses, and we continued to return capital to our shareholders as we execute our announced $2.5 billion share repurchase program,” Fairbank said. “We have the financial strength to deliver very attractive risk-adjusted returns while we invest to drive future growth and be a leader in digital banking.”

Net income for the quarter came in at $1.1 billon, or $1.86 per share. This compares to the second-quarter earnings that resulted in an income of $1.2 billion, or $2.04 per share.

The third quarter net revenue increased 3 percent to $5.6 billon. This year’s results are nearly identical to 2013’s third-quarter earnings, which also registered a $1.1 billion net income. Total net revenue was slightly higher in that quarter at $5.7 billion.

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