A strategy for growth including strong
monitoring and continued innovation has seen Barclaycard continue
to expand its operations abroad and in the UK. Truong
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

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.

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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