The midas touch

By Diana Milne, Editor

As one of the UK’s biggest lenders Barclaycard is at the sharp end of the credit crunch. But that hasn’t stopped it from investing millions of pounds in contactless payment technology. Diana Milne meets CEO Antony Jenkins to find out why he predicts the death of plastic in a decade and how Barclaycard will weather the economic storm.

“In many ways we could see plastic cards as the shortest lived payment mechanism in mankind's history”
-Antony Jenkins, CEO of Barclaycard

IT may have been the first company to launch credit cards in the UK - but today Barclaycard is investing in technology that could ultimately lead their demise.

Plastic will soon be a thing of the past according to Antony Jenkins, CEO of the company responsible for introducing UK customers to credit cards for the first time in 1966. The future, he says, lies in contactless payments and he has put his money where his mouth is by investing a seven-figure sum in the development of the technology. Barclaycard launched its combined Oyster travel and debit cards, OnePulse, in London last year and it has since issued over one million of the contactless cards. Earlier this year it teamed up with the O2 phone network, Transport for London, Nokia and Visa to become the first credit card provider to trial mobile phone payments. It is investing in biometric technology, which could make it possible for customers to make payments using their fingertips or via an iris scan.

In fact so confident is Jenkins in the future of contactless payments that he predicts that in a decade plastic credit cards could be extinct. "In many ways we could see plastic cards as the shortest lived payment mechanism in mankind's history," says Jenkins. "I think it's always difficult to be precise about timings. But in the next ten years, could we see the death of plastic? Absolutely." He says he believes that within the next two years, a mass roll out of mobile phone payments using NFC (Near Field Communication) technology will have taken place. Barclaycard's pioneering six-month trial of the technology saw five hundred customers receive O2 Wallet mobile handsets equipped with inbuilt Oyster cards for travel in London. Of the participants 250 were provided with £200 to spend using their mobile phones.

The pilot, which ended in May this year, was a success with nine out of ten participants claiming they were happy using NFC technology on a mobile phone and 78% saying they would be happy using contactless services if these were available. "Everybody carries a mobile phone with them. I don't get out of bed without a mobile phone let alone leave the house," says Jenkins. "At the same time everybody would like to have less to carry around with them so there's a real convenience factor associated with being able to make payments using a mobile phone."

He goes on to say that further capabilities could be built into the phone such as the ability for customers to check their balances or find out information about the products they have purchased. "You can really let your imagination roam with this sort of technology. You could even get to the point where when you've bought your groceries at the supermarket the phone could keep track of the amount of calories you've purchased in total. I would expect in the next two years you would begin to see more large scale roll outs of this kind of technology." In comparison large scale deployments of payment methods using biometric technology are some way off, admits Jenkins, who says he believes it could be up to six years before customers are paying for groceries using their fingertips.

He is confident however that the technology will be a success, referring to the fact that is it widely used in airports across the world. "Biometric technology is now at a stage where it is ready for mass deployment. I'm a huge fan of the technology they have at the airports where they have retina scanning instead of a passport. This technology presents real benefits to the customer - in terms of speed, convenience and security. I definitely think we will see adoption and I do think the technology is at a scalable level right now. But this is in more like a 24 month to 72 month time frame as opposed to the mobile payment technology which is more near term."

Key to the success of Barclaycard's contactless payment innovations is a positive response by customers and merchants alike. And perhaps one of the biggest challenges it faces is creating confidence on both sides - "With any new technology like this you always have the chicken and the egg situation," says Jenkins. "Retailers will install terminals when there's a lot of customers using the technology and customers will use the technology when you see there are a lot of terminals."

He goes on to say that customers are "inherently conservative" when it comes to using new technology - an attitude that will prove the biggest obstacle to the widespread adoption of biometric payment methods. So far however retailers have been highly receptive to contactless payment initiatives with "tens of thousands" of outlets accepting OnePulse cards and partnerships between Barclaycard and the likes of Argos and Thomas Cook. Barclaycard can also leverage its existing base of 10 million retail customers coupled its network of 96,000 merchants across the UK to speed up adoption of the technology. "We have a very large customer base on the card side but we also have a very large merchant acquiring business in the UK," he says. "We have about 96,000 merchants across the UK so putting together our large merchant base and our large customer base we will be able to catalyse and kickstart the whole process."

Jenkins is coy about just how much money Barclaycard has invested in technology that will ultimately kill off the plastic credit card - revealing only that it is a "seven figure sum". And while this strategy may seem a sharp departure from the company's original raison d'etre, he insists this is a logical step for Barclaycard. "If you look at the heritage of Barclaycard from its establishment in the 1960s, it's always been an innovative and market leading brand. It's in our DNA and we think this is the next wave." There are also compelling market forces driving Barclaycard's investment in contactless payment technology.

It now operates in a very different market from the one where it first launched in 1966.

Competition for customers is tough and as the UK's fourth largest lender (MUST CHECK THIS == I think Diana made Rich change that on nextissue.asp...) and the 12^th largest credit lender in the US - it is at the sharp end of the credit crunch. In the first half of last year the company's profits fell 17% to £272 million partly as a result of bad debt and it was forced to shut a Manchester based call centre slashing over 600 jobs.

Jenkins is under no illusions about how the worsening economic conditions will affect customers' use of credit cards: "In the short term we would expect customers to be more cautious in their use of credit cards and that's appropriate - we would encourage that," he says, adding that Barclaycard too has adopted a more cautious approach to lending. "I think the economic conditions require us and any provider in the market to act as responsible lenders. We're very cautious about who we extend credit to and we are very mindful of our responsibilities to help customers as they get into difficulties as some of them will in the current climate."

The situation makes it all the more imperative for Barclaycard to protect and grow its market share - with the introduction of contactless payment technology, being a key element of its strategy. "We're happy with our brand position. We're happy about how customers perceive us, but of course we know we have to earn that every day. We have to earn that through the new technologies that we roll out. We'd like customers to think of Barclaycard as the best way to make payments."

Staying one step ahead of the competition and fighting hard to win customers has become all the more imperative for Barclaycard given its international expansion strategy. The company operates across Europe, the US, Asia Pacific and Africa. To date the company has issued 7.6 million cards outside the UK and in 2006 two thirds of its new cards were issued overseas.

Speaking about the European side of the business, Jenkins says: "We have a good set of European businesses. I am very happy with our German business where we are number two in the market and number one in the revolving credit market in Scandinavia. "We're the third largest credit card issuer in Sweden, the second largest in Norway and the sixth in Denmark. We also have businesses in France, Portugal, Italy and Spain. Obviously that growth will moderate in the current economic climate but as economies recover across Europe the growth will resume."

The company is well established in the US and last year it announced plans to issue credit cards for the first time in South Africa as well as in Dubai and India. "We would like to see Barclaycard becoming increasingly global over the next five years, building on the strong footprint we have." Jenkins says he hopes that once adoption of contactless payment technology is underway in Europe, the technology will be become a valuable tool in its efforts to win global market share. "Our ability to transfer skills and expertise and some of the learning around the technology that we've discussed into those markets is a key factor in our success. "I think Europe can lead the way with those types of technologies."

Jenkins claims the technology that has been developed so far is just the tip of the iceberg and that he has many more ideas for creating even more high tech payment methods. For now though, his lips are sealed on what those technologies will be. "Of course we have a broad and deep innovation pipeline. We have some things that are just gleams in our eye at this point and I think I'm going to keep them as gleams in our eye."

Antony Jenkins started his role as Chief Executive of Barclaycard in January 2006. He joined Barclays from Citigroup where he has worked since 1989 in a number of roles based in London and New York. As General Manager and Executive Vice President, Citi Brands, he was responsible for most of Citi Cards with $90 billion in receivables. His portfolio included Platinum, Universal Cards, Drivers Edge, Dividend, Diamond AAdvantage, Small Business, Premier Pass and College.

Antony was educated at Oxford University and has a Masters in Philosophy, Politics and Economics. He also has an MBA from Cranfield Institute of Technology. Barclays is where he started his financial career back in 1983, when he completed the Barclays Management Development Programme before going on to hold various roles in retail and corporate banking.

---EXTRA INFO---

Short history of Barclaycard

1966

Barclaycard is launched - the first all-purpose credit card in Europe.

1967
Barclaycard becomes the first ATM card used in the UK.

1977
Company Barclaycard (now Barclaycard Business) is introduced. Barclaycard becomes a founder member of the international Visa system.

1986
Barclaycard launches the UK's first credit card loyalty scheme, Profile Points.

1990
Barclaycard MasterCard launched.

1991
Barclaycard is launched in Germany.

1995
Barclaycard is the first UK credit card company to go on the Internet with Barclaycard Net link.

1999
Barclaycard expands its European operations to Spain and Greece.

2002
Barclaycard is launched in Italy.
Barclaycard acquires the UK credit card arm of Providian Inc, a top ten credit card company in the US.
Barclaycard announces a joint venture with Littlewoods, one of the leading mail order companies in the UK.

2003
Deal signed with Manchester United, giving Barclaycard global rights to issue Manchester United credit cards. Barclaycard acquires Clydesdale Financial Services.

2004
Barclaycard acquires US credit card firm Juniper Financial Corporation. Barclaycard launches Classic and Gold Visa credit cards in Portugal. Barclaycard signs a joint venture deal with the retailer House of Fraser, to issue consumer finance products.

2005
Barclays acquires the majority stake in ABSA Group Ltd in South Africa, through which it now has 1.9m existing cardholders. Barclaycard and BSkyB join forces to launch SkyCard a Sky branded credit card that can be used in a Sky box to make purchases through the television. Barclaycard announces the formation of EnterCard, a joint venture with Swedbank, one of the leading banks in Sweden and Norway, to provide credit cards across the Nordic region.

2006
In the US, Barclaycard launches the Barnes and Noble Member MasterCard with the world's largest bookseller. Barclaycard announces joint ventures with Argos, the UK's second largest retailer, and Thomas Cook, the UK's leading travel brand.

2007
Barclaycard begins to issue cards in India and the United Arab Emiratesand Barclaycard branded cards in South Africa. In the UK, Barclaycard launches Barclaycard Breathe, a card that donates 50% of its profits to carbon reduction projects. Launches Barclaycard Football, a card aimed at football fans in the Up. Barclaycard launches Barclaycard OnePulse, the UK's first contactless payment card. Barclaycard begins trialing contactless payments using mobile phones together with VISA and mobile operator O2.

About Barclaycard

Barclaycard is part of the Barclays Group and has its headquarters in the UK. It is one of Europe's largest multi-brand credit card and consumer lending businesses. In 1966, its credit card was the first to be launched in the UK and it went on to produce the first all-purpose credit card in Europe.

Today, it is one of the UK's most recognised brands, with 10 million retail customers. In addition, it has 8.8m cards in issue outside of the UK and operations in over fifty countries and four continents.

Internationally it currently operates across Europe, the United States, Asia-Pacific and Africa. In 2006, two-thirds of new cards issued were in overseas markets and.

Its global partnerships include Virgin Group in South Africa, Manchester United across Asia-Pacific, SpanAir in Spain, and nearly 50 US card partnerships, including: US Airways, Harvard and Barnes and Noble.