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. Last Updated: 07/27/2016

U.S. Credit Cards Sweep Britain




LONDON -- What exactly is Scottish comedian Billy Connolly doing in biblical robes and beard in a commercial with floating goldfish that fill the television screen?


Improbably, the answer lies in a remarkable U.S. invasion of the credit card industry in Britain that has left big British credit card issuers smarting.


For the goldfish represent the Goldfish card, which has gained 800,000 customers since it was first issued in 1996 by a British subsidiary of Household International Inc. of Prospect Heights, Illinois, in conjunction with a British gas utility.


In just a few years, Household and other U.S. companies - including American Express; MBNA of Wilmington, Delaware; People's Bank of Bridgeport, Connecticut; and Capital One Financial of Falls Church, Virginia - have captured 10.2 percent of the cards issued in a $136.7 billion market that was once controlled exclusively by four big British banks led by Barclays PLC with its Barclaycard.


The Americans have shaken up the industry with innovative marketing and by offering interest rates that are lower than the average rates of 22 and 23 percent charged by British issuers.


"It's a battleground,'' said John Eaton, the managing director of Barclaycard. The company is still the dominant issuer of cards in Britain, but its share of the market there has fallen to 31 percent last year from 37.1 percent in 1995, and the number of different cards available in Britain has grown to 1,200, from 40 in 1990.


"It's a tough, competitive market,'' Eaton said.


Some U.S. companies see further gains ahead. The credit card business in Britain is similar to the way the U.S. market was in the 1980s, said Patrick Nelson, corporate communications manager for Capital One.


"If you look back at the U.S. market in 1986, and look at it now, you will find only three or four of the big players in '86 are still there,'' he said. "And there is that same potential here in the United Kingdom. U.K. High Street banks have been charging far too much for far too long."


The U.S. beachhead in Britain could serve as a springboard into a much bigger and largely untapped market: continental Europe. The continent has outstanding Visa and Mastercard debt estimated at $49 billion - much less than the $397 billion in Visa and Mastercard debt in the United States. Credit cards have failed to win mass acceptance in much of Europe, where big banks dominate with debit cards and personal checking accounts.


The trick for any new competitors in Europe, then, is essentially to create a bigger market, bankers say. And that has happened in large part in Britain, where a boom in the overall use of credit cards has cushioned big banks from the effects of their eroding market share.


"The credit card cake has been growing all the time,'' said David Joy, an economist with the Credit Card Research Group, an industry organization. "So while people like Barclaycard have been losing market share, they have not been losing money.''


The total amount of debt outstanding on credit cards in Britain, mostly Visa and Mastercard, now stands at pounds 21.8 billion ($36.2 billion) up 23 percent from pounds 17.7 billion a year ago.


And Eaton of Barclaycard says figures showing simple market share are misleading. Over the last 18 months, he said, 4 million new credit cards have flooded onto the British market, but many of them have been issued to people who already held a card.


"Three years ago, about 20 percent of card holders had more than one card,'' he said. "Now it's 40 percent.'' Moreover, although credit card use has nearly doubled as a proportion of British retail sales to 20 percent - of which Barclaycard claims 50 percent - from 12 percent in 1990, the numbers show many people still rely on cash, debit cards or checks.


"The marketplace is now very much about share of wallet: How do you sustain your share of wallet?'' Eaton said. "The most powerful indicator is the share of turnover in the total market. How much of customers' spending am I getting on a monthly, weekly basis?''


Beginning in the mid-1990s, some U.S. financial companies reached for the British wallet by taking aim where they thought British issuers were most vulnerable: interest rates.


"The single largest comment is: Give me a low rate and no annual fee," said Carlos Mello, managing director of People's Bank, which introduced its card in Britain in 1996. The bank, with a modest British operation of 55 full-time workers, has so far issued 120,000 cards, with an introductory rate of 6.9 percent that later rises to 17.9 percent, according to the Nilson Report, a credit card industry newsletter in Oxnard, California.