Co-branding is definitely the future for Barclays' U.S. credit card business.
Barclaycard US says it has no plans to market its own cards. Instead the 2-year-old unit of Barclays PLC will continue to rely on co-branding, competing with the name most often associated with such cards, MBNA Corp.
"We believe that the day of the unbranded credit card is fast fading," said Richard Vague, Barclaycard's chief executive, in an extensive interview. "You have to have more than a good APR and reward program, and the most powerful way to do that is through a strong partner."
Its latest such partner is Barnes & Noble Inc.; their new card was introduced Tuesday. Mr. Vague said a hands-on, customized approach to partnerships will help Barclaycard score more big deals and push further into new markets, particularly the affluent market.
Barnes & Noble is one of its best-known partners, and the deal highlights an emerging strategy: merging retailers' loyalty programs with co-branded cards.
"The level of integration between the card program and the loyalty program is really going to a different place," said Ben Brake, Barclaycard's managing director of marketing. "There are just a handful of credit card issuers that are in a position to be able to appreciate what the partner is trying to do, and that it's really all about loyalty and integrating the systems."
Applicants for the Barnes & Noble MasterCard are automatically enrolled in the bookseller's loyalty program. Cardholders are entitled to various perks, and their purchases rack up points toward Barnes & Noble gift cards.
Barclaycard US, of Wilmington, Del., has roughly 1 million cardholders and is constantly on the lookout for co-brand partners. In this it imitates MBNA, long considered the market leader in co-branded and affinity cards. (Bank of America Corp. bought MNBA in January but is still issuing co-branded cards under the MBNA name.)
Two other heavy hitters in cards, Capital One Corp. and American Express Co., use a very different strategy, pouring millions of dollars into promoting their own brand names rather than relying on partners.
"Over the course of time we'd like to have a full, balanced portfolio of partners," Mr. Vague said. "There is a very significant middle-market co-brand universe that is out there where you don't find everybody in the business competing."
Industry experience, speed, size, and a more personalized and segmented approach are the keys to expanding his company's partnership portfolio, he said.
"Because of our relative size, partners are going to get a lot more senior-level attention," Mr. Vague said. "Partners will get programs more customized to their specific needs."
Mr. Vague ran the card issuer First USA before Bank One Corp. bought it in 1997. In 2000 he founded Juniper Financial Corp., which Barclays bought in 2004 and renamed Barclaycard US this January.
The unit's president, Jim Stewart, who was the president and CEO of First USA's now-defunct WingspanBank, reiterated the advantages of being smaller than competitors like MBNA.
"A lot of our competitors are very large, so we try to use that to our advantage," he said. "We're not some huge factory that is just churning out programs."
Mr. Brake said speed in implementing new programs has also been important in attracting partners. "We've launched very complicated programs in record times," he said. "Our ability to respond on a dime has really been important."
The U.K. parent company is important, Mr. Stewart said, because it provides "name recognition" - hence the renaming of Juniper - "and a tremendous amount of capital."
In addition to landing new partners, Barclaycard wants to push deeper into new market segments, especially the affluent. One of its first moves in that direction was through a unique co-branding partnership formed last year with UBS AG.
Barclaycard is issuing American Express charge cards and Visa Signature credit cards to UBS' wealth management clients. Cardholders can earn rewards points by spending with either card.
The program was designed by Barclaycard and imitates American Express' tiered product hierarchy, in which reward levels depend on how much the cardholder spends. The issuer plans to offer the program to other potential partners.
Mr. Brake said that Amex has been talking to several other potential co-brand partners, and that Barclaycard hopes to be involved in other card-issuing deals with it.
The operation has been growing steadily. It now has about 900 employees and should have more than 1,000 by yearend, Mr. Stewart said. In January, Barclaycard US opened its first remote call center, in Colorado, and it is building a second office building in Wilmington. It is also beefing up its customer service representative, credit and collections, and technology teams.
But the operation has yet to turn a profit and will probably lose money this year too, the parent company said in February. It predicted break-even in 2007 and said it is aiming for profits of $150 million in 2008.
(Barclays PLC does not say how much of its profits come from this country, but it did say that the earnings of its worldwide credit card business fell 25% in the fourth quarter, to about $1.2 billion.)
Barclaycard US landed a major airline partnership last year, paying $480 million to win US Airways Group Inc. away from Bank of America. The co-branded US Airways cards, which were launched in January, are "going like gangbusters," Mr. Stewart said.
Barclaycard US also issues co-branded cards with Frontier Airlines, AirTran Airways, and Midwest Airlines. Other affinity partners include Best Western, the Harvard Alumni Association, Orbitz, TiVo, Sinclair Oil, Gulf Petroleum, and Century 21.
Mr. Vague said Barclaycard US is ready and willing to embrace new card technologies and plans to be issuing contactless cards for some of its partners by yearend. It has no plans to issue debit cards, he said, though it is looking into issuing prepaid cards for some of its partners.
Nor is it likely to enter the private-label market, he said, because competition among private-label issuers is already fierce. "The co-branded card could fully take the place of the private-label card in a lot of situations," Mr. Vague said.
