Business Analysis: Forty years on, our debt to that flexible friend has grown to £1.3trn

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The Independent Online

Is Richard Dale the man to blame for the fact that Britons now have unsecured debts of more than £1.3 trillion? Forty years ago on Thursday, Mr Dale, a Barclays Bank executive, completed a project on which he and a hand-picked team had worked for six months. More than a million credit cards began dropping through the letter boxes of the bank's customers.

Barclays was the first bank in Britain to buy into a concept pioneered in the US eight years previously by the Bank of America in Fresno, California. Its BankAmericard, which featured the blue, white and gold colours that would subsequently become such a distinctive part of Visa's branding, had originally been disastrous, racking up millions of dollars of losses as customers defaulted on their debts en masse.

Once the BankAmericard reached a critical mass, however, it began to turn a profit, and Bank of America began licensing its credit card systems - including the blue, white and gold branding - to other US lenders and to international partners.

Mr Dale was keen to avoid the mistakes made by his US partner. Over the first six months of 1966, his team persuaded 30,000 retailers and merchants to join the scheme, and trawled through the bank's customer databases looking for the customers least likely to misuse a credit card.

The first cards were issued on 29 June - borrowers were offered credit limits of £100 and balances had to be repaid in full at the end of each month. But right from the start, Barclaycard faced accusations that it was behaving irresponsibly. Customers were automatically sent the credit cards, whether or not they had asked for an account.

Moreover, while the perception is that credit has become much more widely available in modern times, the original £100 credit limit is broadly equivalent, after adjusting for inflation, to the £1,300 average limit offered to new Barclaycard customers today.

Barclaycard therefore faced similar attacks to the original BankAmericard, which had prompted one US congressman to warn: "A rapidly expanding credit-oriented economy is morally and financially ruinous to the public welfare."

Richard Thomson, a credit card expert at PricewaterhouseCoopers, said such criticisms would be familiar to anyone with experience of lenders today. "The industry is being subject to a number of separate inquiries by different regulatory bodies, looking at virtually every source of income," he said.

But have credit card lenders fuelled a debt explosion, or simply provided a service to meet demand? The first cards proved very popular - holidays and electrical goods were the most common purchases - despite some teething problems.

Antony Jenkins, Barclaycard's current chief executive, said: "There were only a handful of outlets that accepted a credit card. We had one office that housed just under 300 people and each transaction had to be verified over the phone with a member of Barclaycard staff."

For six years, Barclaycard had the UK's credit card business to itself - one reason why it retains a 25 per cent market share in 2006. It was not until 1972 that NatWest, Midland Bank, Lloyds and Royal Bank of Scotland launched a joint credit card operation, with each bank issuing cards under the Access brand.

By then, Bank of America had agreed to give up control of the network of credit card licences it had built during the Sixties. Instead, it became an equal partner in a global scheme, Ibanco, which in 1977 changed its name to Visa. Access, meanwhile, joined the Interbank Card Association in 1975 - the ICA, set up 10 years previously in the US by rivals of Bank of America, became Mastercard in 1983. It also launched a campaign describing the credit card as "your flexible friend", one of the most enduring slogans in advertising history.

In the early Eighties, British plastic issuers, including Barclaycard, began offering both Visa and Mastercard credit cards. Once British borrowers got used to the Mastercard name, the Access brand was dropped, dying out completely by the end of the Eighties.

Competition between those issuers - including banks, building societies, supermarkets and a range of other financial services providers - has become increasingly fierce in recent years. More than 60 issuers use loyalty schemes, cashback deals and cut-price interest-rate offers to attract business.

In theory, such competition should mean borrowers have never had it so good. In practice, the initial worries about Barclaycard never went away - lenders have repeatedly been accused of sharp practices.

Vince Cable, the Liberal Democrats' Treasury spokesman, who will host a debt summit at Westminster this week, argues credit card lenders are to blame for Britain's "debt crisis".

"Part of what has happened with credit cards over the past 40 years is progress, and consumer choice is always to be welcomed," Mr Cable said. "But there are serious problems with the credit card industry: we still do not have a standard way to compare their charges, lenders still raise borrowing limits far too often, and some of the promotion and advertising is very suspect."

Lenders have not always helped their own case. Three years ago, Matt Barrett, then the chief executive of Barclays Bank, told a committee of MPs that he had advised his own family not to use products such as Barclaycard. "I don't borrow on credit cards as it is too expensive," Mr Barrett said. "There are four young adults in my family and I tell them don't get too much debt on your credit cards."

Debt campaigners certainly believe plastic has transformed people's approach to their finances. Among them is Malcolm Hurlston, the chief executive of the Consumer Credit Counselling Service, the UK's biggest debt advice charity. He said: "It's the first and only payment method where neither the merchant, the lender, or even the credit card holder knows whether they are borrowing to cover the cost of the transaction, at least until the end of the month when the bill arrives and is settled in full, or not."

Even so, he is a supporter of credit cards. "The social question is how we help the small number of people who get into debt trouble without damaging the interests of millions of people who are well served by the fact that credit card payments oil the wheels of commerce in the UK and the US."

Colin Grannell, the managing director of Visa UK, said: "The credit card is one of the most amazing post-war inventions - it enables consumers to pay for goods and services anywhere in the world at any time and in any currency. But people must accept this is a commercial business, not a utility, and it does not come for free."

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