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Up against a pack of hungry cards

Barclaycard is fighting to maintain its dominance in a fiercely competitive market, says
ob Ayling and John Eaton. Sir Peter Bonfield and John Eaton. John who? Compared with Ayling and Bonfield, Eaton is virtually unknown. But the organisation he runs is not.

Barclaycard is almost as deeply woven into the economy as British Airways and British Telecom. Nor is Barclaycard any less successful. Last year it reported operating profits of pounds 340m - 17 per cent of the profits made by its parent company, Barclays and a sum not that far off the pounds 504m reported by BA.

Nor is Barclaycard in anything remotely approaching a static market. Eaton at Barclaycard faces a challenge with which Ayling at BT and Bonfield at BT will be familiar: hordes of newcomers out to steal customers by cutting prices.

"In 1990 there were 80 credit cards in this market," says Eaton in his studiedly offhand manner. "Today there are 1,400. In 1990 there were 20 organisations in my business. Today there are 140."

While BA is bedevilled by easyJet and Ryan Air (while still competing against US and continental European flag carriers) and BT is threatened by MCI WorldCom and other new world communications com-panies (while still competing against other erstwhile monopolies), Barclaycard is up against an even greater profusion of newcomers and established players.

Take, first, the homegrown new entrants like Royal Bank of Scotland's Advanta card, Alliance & Leicester's Money Back card and Sainsbury's Bank Classic. Add to them the Genghis Khans from abroad - American "monolines" such as Capital One. Since 1994, Capital One has mounted a sustained attack on the UK - setting out to challenge the inertia that has long characterised the market. Its weapon is price: it offers cards with interest charges far lower than the rates charged by Barclaycard.

"It's no secret that our reputation for being the leader in offering value for money has been challenged," Eaton concedes. "But what we're doing now will place us right back on top of the value tree."

Last week, Eaton unveiled a fusillade of marketing initiatives. Barclaycard's rewards scheme now allows customers to get air miles or discounted phone calls instead of flowered tea kettles ordered through a catalogue harking back to Edwardian times. There's also a free extended warranty for customers buying fridges or cookers on their Barclaycards.

Eaton has also cut interest charges by 1 per cent to 19.9 per cent. And he has reduced from pounds 5,000 to pounds 2,000 the amount customers have to spend to have their pounds 10 annual fees waived.

These measures are carefully thought out to blunt the sales pitches of the opposition. Talking to Eaton, you sense that a lot of heavy thinking has gone on to distil the new set of propositions to jewel-like clarity. But they remain modest. "We don't believe in competing on price alone," is the way he puts it.

Nor is there any urgency to do so. Credit cards, like air travel and telecoms, are booming. Barclaycard was launched in 1966 and has rarely looked back. Today 15 per cent of consumer spending is paid for with plastic, according to Visa and Mastercard.

And still the market is underdeveloped. "Forty per cent of people have credit cards in the UK," Eaton says. "It's 80 per cent in the US. I don't think we will, or should, go that high. But I foresee 60 per cent here."

The same upward trends apply to the number of credit cards held by individuals and the amount of spending on them. Riding these trends, Barclays' operating profit was up 19 per cent last year on 1997.

The issue facing Eaton, in short, is hardly survival. It's rate of growth compared with the competition. Barclaycard's share of the pounds 65bn credit- card market has slipped from a third to less than 30 per cent over the past three years. Eaton is focused on stopping this erosion. Competitors argue he is doing too little too late.

"Their marketing initiative will slow attrition, but it will be difficult to reverse," says Mark Austin, marketing manager of RBS Advanta. Patrick Nelson, director of external affairs at Capital One, is more scathing. The days when the credit-card business was about burnishing your brand are gone, he says. The game now is micro-segmenting the market and giving constantly updated pitches. "Last year we conducted 28,000 market tests on 6,000 different product combinations."

More disinterested observers are less harsh. "Barclaycard should not be underestimated," says Constantine Psaltis, a partner at the strategic consultancy Mitchell Madison. "It's got a magnificent franchise. It can do what BT is doing to fight off new entrants: adopt complex pricing arrangements to appeal differently to different segments of its customer base."

Still, the contrast between the raw if self-serving candour on the part of the new credit-card companies and Eaton's circumspection in spelling out his targets and even his strategy sends a message: it's Barclaycard that's on the defensive.

"Credit cards are on the verge of a paradigm shift," says Nigel Mengham, marketing and sales director for NatWest Card Services. Markets are going global. E-commerce will transform shopping. "Different people are dealing with this paradigm shift in different ways."

Eaton's effort to stabilise Barclaycard's home market is sensible. But is it enough? Pressed to go beyond his carefully worked out script, Eaton repeats: "We think our initiatives will put us back on top of the value tree. But only time will tell. In nine months we'll know."