You’re evaluating a co-branded partner that can deliver 50,000 new credit-card customers. Assumptions (Year 1 unless stated): - Activation rate: 80% (only activated users generate economics). - Monthly spend per activated user: $600 for 12 months. - Interchange revenue: 1.5% of spend. - Rewards cost: 1.2% of spend. - Annual fee: $95 collected in month 1 from 25% of activated users. - Servicing cost: $1.00 per user per month. - Expected credit loss (bad debt): $24 per activated user over 12 months. - Partner economics: $70 CPA to partner + $100 signup bonus per activated user. - Discount rate: 10% annually (assume monthly discounting at 10%/12). Tasks: 1) Compute the 12-month NPV per acquired user and total NPV for the cohort. Show all components: interchange, rewards, fees, servicing, credit loss, and acquisition costs. 2) Derive the break-even CPA (holding other assumptions fixed). 3) Sensitivity: Recompute NPV for (a) interchange ±0.3 pp, and (b) credit loss ±$10. Identify which variable the decision is most sensitive to and state your recommendation.

This question evaluates cohort-level unit economics, discounted cash-flow (NPV) modeling, and sensitivity/break-even analysis related to customer acquisition and credit-card portfolio economics.

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This is a medium difficulty Analytics & Experimentation question, commonly asked during Onsite rounds at Capital One.

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Evaluate a credit-card acquisition partnership | Capital One Interview Question

Cohort NPV and Sensitivity for New Credit-Card Customers

Context

You are evaluating a co-branded partner expected to deliver 50,000 newly acquired credit-card customers in Year 1. Only activated users generate spend-based economics (revenue, rewards, credit losses, fees). Use monthly discounting at an annual rate of 10% (i = 10%/12 per month). Compute NPV over the first 12 months only.

Assumptions (Year 1 unless noted):

Cohort size: 50,000 acquired users; activation rate = 80%.
Monthly spend (per activated): $600 for 12 months.
Interchange revenue: 1.5% of spend.
Rewards cost: 1.2% of spend.
Annual fee: $95 collected in month 1 from 25% of activated users.
Servicing cost: $1.00 per user per month.
Expected credit loss (bad debt): $24 per activated user over 12 months.
Partner economics: $70 CPA (to partner) per acquired user +$ 100 signup bonus per activated user.
Discount rate: 10% annually with monthly discounting at 10%/12.

Assumptions on timing (state clearly if you choose differently):

CPA paid at acquisition (month 0).
Signup bonus and annual fee occur in month 1.
Spend, rewards, credit losses, and servicing occur monthly (months 1–12). Credit losses are spread evenly over the 12 months.
Servicing cost applies to all acquired users (activated and not). If you assume it applies only to activated, multiply by 80% instead.

Tasks

Compute the 12-month NPV per acquired user and the total NPV for the 50,000-user cohort. Show all components separately: interchange, rewards, fees, servicing, credit loss, and acquisition costs (CPA and signup bonus).
Holding other assumptions fixed, derive the break-even CPA.
Sensitivity: Recompute NPV for (a) interchange ±0.3 percentage points, and (b) credit loss ±$10 per activated user. Identify which variable the decision is more sensitive to and give a recommendation.

Context

Assumptions (Year 1 unless noted):

Cohort size: 50,000 acquired users; activation rate = 80%.

Monthly spend (per activated): $600 for 12 months.

Interchange revenue: 1.5% of spend.

Rewards cost: 1.2% of spend.

Annual fee: $95 collected in month 1 from 25% of activated users.

Servicing cost: $1.00 per user per month.

Expected credit loss (bad debt): $24 per activated user over 12 months.

Partner economics:

70 CPA (to partner) per acquired user +

100 signup bonus per activated user.

Discount rate: 10% annually with monthly discounting at 10%/12.

Assumptions on timing (state clearly if you choose differently):

CPA paid at acquisition (month 0).

Signup bonus and annual fee occur in month 1.

Spend, rewards, credit losses, and servicing occur monthly (months 1–12). Credit losses are spread evenly over the 12 months.

Servicing cost applies to all acquired users (activated and not). If you assume it applies only to activated, multiply by 80% instead.

Tasks

Compute the 12-month NPV per acquired user and the total NPV for the 50,000-user cohort. Show all components separately: interchange, rewards, fees, servicing, credit loss, and acquisition costs (CPA and signup bonus).

Holding other assumptions fixed, derive the break-even CPA.

Sensitivity: Recompute NPV for (a) interchange ±0.3 percentage points, and (b) credit loss ±$10 per activated user. Identify which variable the decision is more sensitive to and give a recommendation.

Evaluate a credit-card acquisition partnership

Quick Overview

Cohort NPV and Sensitivity for New Credit-Card Customers

Context

Tasks

Solution

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Evaluate a credit-card acquisition partnership

Quick Overview

Cohort NPV and Sensitivity for New Credit-Card Customers

Context

Tasks

Solution

Comments (0)