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April 29, 2008

Barclaycard bounces back

A strategy for growth including strong monitoring and continued innovation has seen Barclaycard continue to expand its operations abroad and in the UK. Truong Mellor reports on the companys resilience amid ongoing difficult credit conditions.

By Verdict Staff

A strategy for growth including strong monitoring and continued innovation has seen Barclaycard continue to expand its operations abroad and in the UK. Truong Mellor reports on the company’s resilience amid ongoing difficult credit conditions.
Despite a slump in credit markets across the globe, Barclaycard has been able to maintain healthy levels of growth in its domestic and overseas operations. According to a recent investors’ seminar held by the bank, this has been largely due to a customer-centric approach combined with proactive credit controls, strong management and the efficient utilisation of technology to keep operational costs down.

Foreign growth

Over the last 12 months, Barclaycard has been making significant inroads into foreign markets in order to grow its business beyond the UK. While it was both the largest credit card and largest Visa and MasterCard branded corporate card issuer in the UK in 2007, a growing proportion of Barclaycard profits before tax during this time came from outside of the UK market, representing £77 million ($153 million), or 14 percent, of the group’s overall profit for the year.

In 2007, 80 percent of newly issued cards were done so outside of the UK. Barclaycard is now the largest issuer of revolving credit cards in the German market, and through its Entercard initiative in conjunction with Swedbank in the Nordic region, Barclaycard has grown to become the third largest issuer in both Sweden and Norway. The company continues to strengthen its presence in South Africa through its Absa subsidiary, and was the country’s second largest issuer in 2007. Barclaycard also announced plans to reintroduce its own branded credit cards into the South African market after a 20-year absence. The Barclaycard Visa credit cards are aimed at the prestige segment of the market, and are issued by Absa.
Additionally, Barclaycard’s US operations have fared well during the turbulence in the credit market over the last 12 months.
Total US outstandings for the company reached $6.5 billion in 2007, a $2.5 billion increase from the previous year and a fourfold increase from its 2005 level of $1.6 billion. According to Barclays, it was the deployment of world-class management information and a team experienced in working through all stages of the credit cycle that saw them avoid the worst symptoms of the credit crunch in the US. Early forecasting of the downturn saw Barclaycard pull back its overall lending, minimising its exposure to bad debt. The company is on track to meet its targeted goal of $150 million in profits before tax in 2008, and is extending its proposition in the US to include prepaid debit cards.

UK market

Despite a concerted focus on overseas markets, Barclaycard’s UK business was able to return to a healthy growth level after a managed pullback in 2007 to stave off the worst effects of the credit downturn. Card balances rose to £9.2 billion by December 2007 after a £1 billion drop during the year from its fourth quarter 2006 level. Concurrently, the UK loss rate for Barclaycard last year dropped back to its 2005 level of 4.6 percent after spiking up to 6.3 percent in 2006. Barclaycard’s share of new UK accounts rose by 9 percent in 2007. Barclaycard is also the UK’s second largest merchant acquirer.

A large part of Barclaycard’s continued strength in the UK market is undoubtedly its push for innovation within the cards sector. The year 2007 saw a reinvigoration of this capability through the launch of several initiatives, most notably the Barclaycard OnePulse card, which combined credit, cashless and an Oyster travel function all on the one product.
The Barclaycard contactless payment function OneTouch was also unveiled in September 2007 in conjunction with the OnePulse card, making ‘touch and go’ payments possible for purchases under £10. More than 4,000 retail outlets are already live with Barclaycard Business OneTouch contactless technology, and there are plans for 20,000 to be live by end of 2008. Barclaycard was also leading the way in the UK market for CSR initiatives with its Breathe proposition. This card donates 50 percent of its profits to environmental projects dedicated to reducing carbon emissions around the world.

Strategy for continued growth

It is this continued customer-centric innovation combined with vigorous risk/reward analytics and controls both at home and abroad that Barclaycard sees as the key to continued success. In the UK, stronger risk systems for measuring potential customers have seen the company maintain a healthy portfolio while maintaining application rates at around 50 percent.

One further key initiative that saw Barclaycard remain buoyant despite the pressure the market faced in 2007 was a reduction in operating costs per active card account. Through strategic offshoring and the harmonising of its IT capabilities, the company was able to make a 7 percent reduction in the overall cost per active account.
Underpinning all this is a new executive team that has been fully embedded over the last two years, bringing with them an average of 10 years’ experience in the global cards market and 16 years in the financial services industry.
A robust mixture of both internal and external hires has brought in an enhanced senior management team with deep functional expertise and a performance culture that has been ingrained into the Barclaycard business model.

Profit before tax in UK and non-UK markets

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