After abandoning its initial venture to launch approximately $1billion in financing to established Taxi/Lyft drivers and small businesses in two years, some two years later Capital One (COF), the second largest US bank (by assets) is now switching its attention to the up-and-coming industry of ride-share service providers like Uber. This switch in strategic plans comes as the Federal Communications Commission, in a recent effort to bring back public transportation by opening up new areas for private companies to operate, announced that it would start regulating the sharing and renting of personal vehicles by commercial companies that provide ride-share services. Following this news, many small business owners, taxi drivers and consumers alike, are wondering whether the company will now shift its focus on other areas, like finance, or whether the acquisition of an additional ride-share service provider is merely an attempt to gain a monopoly.
The company's acquisition of Avisa, the second largest car-hire and vehicle maintenance provider in the United States and Europe, which also provides its clients with fleet management services, is an indication that Capital One may have chosen to diversify. In addition to its major lending interest in Avisa, which was valued at $1.4billion, Capital One has recently made moves to further strengthen its ride-share operations by investing in two other companies: Grab, a service that provides a similar concept to that of Avisa, and LimeCar, a car-sharing service that enables consumers to access a fleet of cars and services based on preferences. While Grab will provide a platform through which Capital One customers can rent and share their automobiles, LimeCar's business model involves charging a per-use fee and requiring users to pay a monthly membership fee.
However, while Avisa and Grab both have significant potential to enhance Capital One's Ride Share operations and potentially increase the company's earnings, neither company has the same potential to grow the overall industry and bring down the cost of vehicle ownership or rentals, as Capital One currently has. Both companies are successful, however, due to their ability to leverage on existing financial institutions and acquire multiple financial and non-financial assets to fund operations. In particular, Avisa's financial support is derived from multiple sources, including a large number of car-leasing agreements with various rental car-leasing companies and a relatively modest amount of equity financing from existing financial institutions, a relatively large investment from an institutional partner, an existing loan from an established financial institution, and a variety of credit card and vehicle servicing agreements, among other financial investments.
The acquisition of Avisa, in addition to its capital, equity and loan commitments, gives Capital One a valuable opportunity to expand into the global market without the need for the funding needed to conduct extensive research and development for new applications or equipment, as the company has done in the past, and to build upon Avisa's track record of innovation and technology. This expansion potential, coupled with its current financial situation and its willingness to change its strategic . . . . . . plans when required, suggests that Capital One could have plans to diversify its future plans.
However, the potential to reduce the cost of ownership for consumers and drivers and to create a more competitive marketplace are two factors that should not deter Capital One from continuing its efforts to further grow its ride-share operations. Since most ride-share companies offer lower prices than existing taxi/Lyft services in major cities like San Francisco, New York, Chicago and Washington DC, the combination of reduced prices plus the potential to expand to a wider customer base and wider geographical areas might be enough to give Capital One a significant edge over existing taxi/Lyft competitors.
In addition to the increased competition in the marketplace, some analysts suggest that Capital One could benefit from offering new services that may appeal to more customers and attract a larger pool of income. customers if it were to acquire more shares of the car-hailing service industry, which would provide additional financial benefits and leverage. While Avisa and Grab have limited growth potential, Capital One could still grow in a number of ways that could bring it closer to the size and market share of its competition if it were to diversify its strategies and pursue new strategies for expanding its service offerings.
