Cheap credit fires plastic revolution

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The Independent Online
BARCLAYCARD, the first and biggest credit card issuer in the UK, is finally loosening its iron grip on the country's wallets.

Despite the reported downturn in the economy, consumer spending is still so high that ferocious competition in the card market has put paid to hundreds of Barclaycard jobs.

Last week's announcement of the loss of a quarter of Barclaycard's 4,400 staff was first blamed on a fall-off in business. But it later became clear that Barclaycard has suffered from the onslaught of competitors, particularly from America. And the industry-funded Credit Card Research Group (CCRG) believes more than 5,000 new jobs have been created to meet the demand for new cards.

Ten years ago, customers had a choice of 30 cards, most from high street banks. Now there are 1,200 cards, charging interest rates as low as 6.9 per cent, with no annual fee. Barclaycard and the other traditional banks no longer compete on price. Barclays charges 22.9 per cent annual interest, and a fee of pounds 12 a year. NatWest, Lloyds, and Midland charge more than 20 per cent interest plus annual fees.

Industry sources believe Barclaycard still signs up more customers than any other issuer, thanks to a pounds 15m annual advertising budget. But it seems the bank is losing other customers as fast as it signs up new business. The result: the shedding of 1,100 jobs.

The threat comes from two sources: low-cost, no-fee cards from American issuers; and credit cards offering perks such as supermarket loyalty points or giving cash to charity. The "perk" cards appear to be beating the low- cost issuers in the battle for customers. The most successful is Goldfish, a joint venture between Centrica (part of what was British Gas) and HFC Bank. It has issued 750,000 cards in two years. For every pounds 100 spent, customers get pounds 1 off British Gas bills, or vouchers for M&S and Boots. Barclaycard's own loyalty scheme, Profile Points, is taken up by only one in 10 customers and compares badly to the sophisticated new cards. You need to spend pounds 9,000 on your Barclaycard to get enough points for a pounds 20 toaster.

Loyalty credit cards will get a massive boost next year, when credit cards with smart chips appear. The chips are an anti-fraud measure but they also store information, so loyalty card points and discounts will appear on accounts instantly.

Many charities, universities and other special interest groups are also offering cards. It does not cost them anything but each group must have a mailing list of at least 15,000 to make the card viable. The Bank of Scotland has 700,000 cards issued on behalf of 500 groups, who receive pounds 7.50 for each card issued and 25p for each pounds 100 spent. Groups as diverse as the Star Trek Fan Club and the Whale & Dolphin Conservation Society use the service.

The newest American banks specialise in low-cost cards, and use technology to "cherry-pick" the most desirable customers in the UK. If you have received a junk mailing from a US card issuer, you are likely to fit their customer profile: they want "borrowers", those who repay some but not all of their bill every month.

Many people who pay off their bills in full have been turned away by issuers such as Capital One (offering 6.9 per cent APR) and RBS Advanta (7.9 per cent) because the banks would not make any money out of them. Patrick Nelson at Capital One said: "In 1991 every card in the US had a $20 annual fee and charged 19 per cent interest. Capital One pioneered the balance transfer idea and the introductory rate. Everyone is doing it now."

Capital One and People's Bank have invested heavily in the UK but they will not reveal how many cards they have issued, which suggests that things are not going exactly to plan.

John Bushby, Mastercard's general manager in the UK and Eire, says: "There will be a large number of loyalty and affinity (charity) cards, gold and platinum cards."

Credit and debit cards, such as Switch, account for only 20 per cent of the money we spend. There is plenty of room for more plastic in the UK.


MBNA: Secretive US bank. Employs 1,500 in Chester, issues own- name cards and for 600 groups including WWF UK, Reader's Digest and The Prince's Trust.

HFC: Employs 1,200 in Birmingham. Issues Goldfish and the GM Card (from Vauxhall). Merged with Beneficial Bank, US issuer specialising in cards for others.

Capital One: Top ten US card issuer. Has a pounds 30m centre in Nottingham set up in 1996. Employs 250, with plans to expand to 900. Issues own-name low-cost cards.

People's Bank: A base in Northampton employs only 40 and other work is outsourced. Issues cards under its own name.

Bank One: Coming to Cardiff, Bank One is the second largest card issuer in the US and plans to employ 1,000. Will issue cards under its own name and for other groups.

RBS Advanta: A venture between Royal Bank of Scotland and US giant Advanta. RBS now owns the Advanta share.

Lowest interest rate: Capital One 6.9% until April 1999. Call 0800 952 5252.

Best for Air Miles: Sainsbury's Bank. Call 0500 405060.

Perks: Get Money Back from Alliance & Leicester. Call 0500 838383

Charity cards: 500 available from Bank of Scotland, eg Red Cross, NSPCC, RSPCA. 11.9% for six months then 19.9%. Call 0800 716 097.

Flashiest: Platinum Card from RBS Advanta, 7.9% APR until July 1999. Minimum income pounds 20,000. Call 0800 077770.