CLASSIC CASE STUDIES
Barclaycard: still the king of pla$tic?
Bernardo Bátiz-Lazo and Nurdilek Hacialioglu with contributions by Jarunee Wonglimpiyarat and Douglas Wood The case study looks at milestones in the UK credit card market. It then focuses on how a longstanding market leader maintains a position of advantage and develops its business in a fast-moving industry undergoing significant change. There are many different strategic options open to Barclaycard, but which will be most suitable? Will all the options be acceptable, not only in terms of the likely risk and returns but also to the major stakeholders? Will the options be feasible? The case invites readers to evaluate and compare a range of strategic options and to choose the best way forward for Barclaycard. ● ● ●
One of the biggest blunders in recent corporate history took place in 2003 when Matt Barrett, CEO of the Barclays Group, publicly stated: I don’t borrow on credit cards because it is too expensive . . . [I do] not recommend to anyone they chronically borrow on their credit card.1 He was the first bank executive who talked about credit cards openly – or bluntly. Although his comments led to a public relations fiasco, they also reflected growing concern around who should be in charge of advising consumers to borrow responsibly. Banks and regulators were concerned that credit card borrowing had doubled between 1999 and 2003 to £168bn (≈ a250). At the same time, interest rates had fallen by two-thirds since 1992 while rates charged for unpaid credit card balances had only declined by a third in the same period and some store cards charged up to 32.5 per cent. Managing over 10m UK customers, 85,000 retailers, 5,000 staff and offering one of the highest-priced card products it was not surprising that Barclaycard was under close scrutiny as the inquiry into the credit card industry evolved.
THE ORIGINS OF CREDIT CARDS AND BARCLAYCARD
Credit cards emerged in the first half of the 20th century. Initially credit cards were used for identification purposes against non-cash purchases. The launch of Travel and Entertainment (T&E) cards by 1
The Guardian, 17 October 2003.
This case was prepared by Bernardo Bátiz-Lazo (London South Bank University) and Nurdilek Hacialioglu (Open University) with contributions by Jarunee Wonglimpiyarat (The National Science and Development Agency of Thailand) and Douglas Wood (Manchester Business School). It is intended for class discussion rather than as an illustration of either good or bad management practice. Comments from Jill McGavock, Gregory Reece-Smith and MBA graduates of the Open University are gratefully acknowledged. The contribution by Professor Douglas Wood (1942–2003) was published posthumously. © BátizLazo, Hacialioglu, Wonglimpiyarat and Wood, 2004. Not to be reproduced or quoted without permission.
Exploring Corporate Strategy by Johnson, Scholes & Whittington
Barclaycard: still the king of pla$tic?
Diners Club in 1950 was a turning point because bills from places such as hotels, restaurants and airlines were reimbursed by the issuer and then billed to be paid in full by the customer. T&E cards, thus, merely functioned as a charge card.2 Diners’ T&E cards led to the establishment of similar cards by American Express and Carte Blanche. It was around this time when the Franklin National Bank (based in New York) developed what is recognised as the first real credit card. This innovation considered offering rollover credit up to an authorised credit limit. Managers at Franklin National Bank also recognised the competitive potential of issuing credit cards to other banks’ customers. Due to regulatory constraints, however, branch banking in the US was highly localised. At the same time, there was an increasingly mobile population across the country as a whole. A franchising system developed when trying to find ways to facilitate customer purchases anywhere in...