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 months.”
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 2007.
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”.