Barclaycard forced to cut rates as market share falls

BARCLAYCARD, the UK's biggest credit-card provider, is cutting its main interest rate to under 20 per cent for the first time in a move that reflects the increasing damage inflicted on its business by low-cost competitors.

The wholly-owned subsidiary of the Barclays group said it would cut its headline annual rate of interest to 19.9 per cent, a 3 per cent drop from its level six months ago.

The company is also launching a package of added benefits, including savings of up to 30 per cent on home phone calls, and a free extended warranty for household appliances bought with its card. It is also launching a Platinum card offering enhanced benefits for high earning customers.

The move drew immediate attacks from its competitors, which have continually savaged Barclaycard for making excessive profits and charging an annual interest rate of more than 22 per cent.

Low-cost competitors, many of them new entrants to the market from the United States, have succeeded in capturing an increasing share of the booming market by offering interest rates of a fraction of Barclaycard's.Competitors such as Capital One, a US credit-card issuer, are now offering rates as low as 11.9 per cent. Rivals such as RBS Advanta, a joint venture between Royal Bank of Scotland and the credit-card issuer Advanta, are also luring customers away. They offer to take on Barclaycard debts at a starting rate of just 6.9 per cent.

The move represents a dramatic reversal of strategy for Barclaycard. Until recently its managers have resisted cutting rates, arguing that customers would be attracted by added extras such as warranties.

In the City the strategy is widely perceived to have failed. Barclaycard's market share, which stood at 32 per cent two years ago, has now shrunk to around 28 per cent.

The company has still grown its business because the market for cards is expanding by 15 to 20 per cent a year. But last September it announced it was slashing 1,100 jobs, out of a staff of 5,000, because of new technology and the need to cut costs.

John Eaton, managing director of Barclaycard, said: "I would accept the point that people have challenged us on value. I don't generally believe businesses should build their strategies around market share alone, but we did of course take that into account. We are not going to be seen in the same light as the other traditional banks." He said the bank was also cutting out hidden charges such as penalties for late payment and exceeding card credit limits.

The City yesterday said the move had been forced on Barclaycard by the competition. Inigo Edsberg, a senior analyst at WestLB Panmure, said: "This is purely a defensive move. And ultimately the profitability of Barclaycard will fall, as it should do because it is far too profitable."

Competitors were quick to strike back. Mark Austin, marketing manager of RBS Advanta, said: "While we welcome Barclaycard's attempt to keep pace with other issuers by chipping away at their rate, consumers shouldn't have to wait. Millions can still reduce their bill by around two thirds, simply by switching cards."

Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk