UK credit card issuers have come under fire in recent weeks for
not reducing interest rates on their offerings in line with the
lowering of the official Bank of England base rate, which as of
February 2009 stood at 1 percent. With most UK credit cards having
APRs typically between 15.9 percent and 18 percent, consumer rights
groups are asking just why credit card issuers are not budging,
particularly at a time when economic pressures are set to get even
worse during the course of 2009.
Now Barclaycard, with nearly 12 million customers in the UK as of
August 2008, is bucking the trend by announcing that it is freezing
the prices for all its existing UK personal customers for at least
the next four months, and it will also reduce purchase interest
rates for at least three million customers by between 2.5 percent
and 5 percent. Selected customers will be informed directly of the
change, with half of these reductions being implemented in February
2009, and the remaining taking place throughout the year.
By suspending its risk-based pricing policy until June 2009,
Barclaycard is aiming to reassure customers that they will not have
their purchase interest rates increased even if their risk profile
changes. However, and perhaps not surprisingly, those customers who
have been selected have already been identified as having low-risk
profiles, including those who
clear their account regularly and those
who revolve on a monthly basis.
The question of what will happen to high-risk, less
credit-worthy customers is one that Barclaycard is reluctant to
discuss, but it can be expected that it will ramp up its credit
scoring and collections activities in the months ahead. Many in the
industry are predicting a sharp rise in bankruptcies, card
delinquencies and charge-offs in 2009, so although Barclaycard
could win plaudits for its re-pricing about-turn, it may also prove
to be a huge gamble that might not pay off.
Financial difficulty initiatives
Mindful of this, Barclaycard has embarked upon a set of
initiatives aimed at helping customers who fall into financial
difficulty. It has set up a new helpline for customers concerned
about their financial situation, and it is also using behavioural
data shared with other credit card lenders and additional
information about the total borrowings of customers to enable it to
predict when customers may be getting into difficulty.
Barclaycard stated these initiatives demonstrate that it wants
to take timely action to prevent further financial stress, saying:
“The business believes it is not in the long-term interest of
customers to borrow more money when they get into difficulty, and
[Barclaycard] will continue to react to signs of difficulty by
reducing their credit limit and offering advice.”
Antony Jenkins, CEO of Barclaycard, said: “We recognise that
2009 is going to be a difficult year for many people and we want to
do what we can, when we can, to help customers.
“This announcement will assist millions and we are determined to
support them further, in innovative ways, over the coming
Offers for new customers
Barclaycard is also aiming to entice new customers by reducing
the APR by 2.5 percent to 12.4 percent for its flagship Barclaycard
Platinum product and Barclaycard OnePulse, the combined credit,
contactless and Oyster offering which was launched in September
Barclaycard has consistently refused to give out exact customer
numbers for the OnePulse card, and the latest APR reduction follows
on from a series of promotional offerings rolled out since its
launch, suggesting that take-up of the product has fallen far below
what Barclaycard was expecting.
Barclaycard’s re-pricing gamble was announced just as global
credit ratings agency Moody’s cut Barclays’ credit rating, saying
losses on lending to corporations and consumers in the UK were
likely to increase as a result of the economic downturn.
However, Barclays has sought to reassure investors and the wider
market about its financial strength by bringing forward its 2008
results announcement by a week to 9 February, stating a total of £8
billion ($11.5 billion) of credit market write-downs had been
absorbed by “record income levels”, and the bank’s capital
resources were “well in excess of regulatory requirements”.