The Evolution of Credit Cards: From Identification to Payment Method

The use of Credit cards started during the first half of the 20th century. The cards were initially used to make the process of identification less complex and for confirmation of costumers when authorization was required by tellers for account purchases in retail stores. The process developed, and in the 1940s, some banks in the united states allowed customers to buy goods and services, and have these charged to against their monthly bank charge account, rather than to a store account Development of competition Early contenders to Barclaycard emerged from their closest competitors.

In 1966, prompted by the success of the bank americard network, members of the competing franchises formed the interbank card association (ICA), which was later to become known as MasterCard international. The ICA differed from bank americard in being an organization controlled by member banks that took responsibility for promoting the MasterCard brand and for setting standards for security, authorization, clearing, and settlement systems between members. ICA went international in 1968 with an association with banamex.

Barclaycards strategy in the market has been associated with three continuing elements. The first was the continued growth of the credit card market shown in exhibit 4. over the period 1989-9, the volume of credit card transactions grew at 7. 5 percent, while debit cards grew at 40 percent. The number of credit cards in use increased by 5 percent by annum and the value of a transaction by 5. 5 percent p. a. The second factor was the relative success of visa, whose UK franchise was exclusive, enjoyed Barclaycard in the early years.

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Over the years, a visa secured a position as the world’s most wildly used card, by 1998 accounting for $ 1. 4 trillion dollars of purchase or 55 percent of the global market. Although the competition between Visa and MasterCard was less clear cut in the UK Barclaycard’s visa had international acceptability with 16million merchants worldwide. Exhibit 5 suggests that although Barclaycard lost market share somewhat faster than the other major banks, the strength of visa’s international position to some extent offset Barclay’s premium pricing.

The profitability of Barclaycard Even though Barclaycard was the first and for a considerable amount of time, the only issuer of credit cards in the UK, Barclaycard made some losses during the first decade of its operations, as the company built up its card and merchant volumes. In 1995, Barclaycard acquired 90,000 gold customers, and that launch increased Barclaycard’s market share of newly issued credit cards to more than 30 percent.

Processing of Barclaycard Transactions

Transaction from paper to electronics introduced large economies of scale in processing.

This innovation however was characterized by a relatively high level, one-off investments. Alternative strategic directions open to Barclaycard in its future development Barclaycard should team up more with other companies. For example, the co-operation with Sainsbury, gasoline marketer BP, and department store chain Debenhams is launching new loyalty programs. With every Barclaycard purchase, shoppers should be able to collect points that can be exchanged for gifts like restaurant meals, consumer goods, grocery shopping, flights, and cinema tickets.

Barclaycard should also capitalize on the company’s strong customer base by relationship marketing alliances, with leading organizations in other service industries like Cellnet, BT and Marks, and Spencer. Evaluation of alternatives Suitability: On the basis of suitability, the best alternatives available to Barclaycard are to ensure the continued ATM usage of Barclaycard, and to ensure automation through a fully computerized transaction system. This is because cash withdrawal through ATMs is a major customer use of credit cards.

The company should also endeavor to eliminate most of the paperwork in order to speed up the authorization process and provide narrative statements for cardholders. Acceptability: Barclaycard’s ability to monitor and measure credit risk is very crucial to its acceptability. In 2000, the volume of Barclaycard transactions rose by 12 percent, while charges for doubtful and bad debts increased by 34 percent. Financial performance thus suggested that the company’s managers have the responsibility to find customers who were in need of rollover credit, and who were less likely to default on payments.

Feasibility: Barclaycard once proposed to charge non-customers heavily for using its machines, a proposal that had to be withdrawn at that time due to heavy persecution from the press. This is not a very good strategy and should be avoided. Recommended alternatives Barclaycard strategy in the credit card industry has been associated with the continuous growth of the credit card market, its ability to avoid price competition by branding, and also, the relative success of Visa.

Barclaycard should strive to avoid price competition by branding and by using technological developments within the card networks. This is because the intensity of the competition in the credit card business tends to lead to the best creditworthy customers gaining access to credit far more cheaply. Thus it is quite difficult for credit card transaction volumes to increase quickly without inflicting bad and doubtful debts to credit card users.

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