When U.S. credit card issuers started trickling into the United Kingdom about five years ago, British banks took little notice.

Fast-forward to today: U.S. banks account for more than 10% of the British cards market, twice as much as two years ago. Analysts estimate that the percentage will at least double in the next five years.

Two American companies-MBNA International and Household International's U.K. subsidiary, HFC Bank-have muscled into the top 10 among credit card issuers in Britain. Other U.S. companies-such as Capital One Financial Corp., People's Bank, Citibank, and American Express Co.-are steadily increasing their market shares.

Two recent reports by London newspapers show the inroads that have been made by American companies.

The Sunday Times compared rates among six credit cards - and three of the cards were new imports from the United States.

And the Independent reports that Bank of America offered to buy the Barclaycard, Britain's largest credit card program and a flagship product for Barclays Bank. The BankAmerica Corp. unit denied it, and Barclays would not comment, but analysts said the rumor signified the enthusiasm of U.S. issuers for the British market.

Most of the market is still in the hands of a few British banks, but U.S. issuers seem to be changing the way British consumers and bankers view credit. Teaser rates-which were once unheard of-have prompted formerly loyal customers to jump ship from British banks, and cobranded and affinity cards are fast becoming popular products.

"The market is going through a substantial change," said Carlos Mello, managing director of People's Bank in the U.K.

Before the U.S. invasion, "it had been very much geared toward rewarding consumers for using the card for convenience purposes."

Today, thanks to the lessons from American banks, "consumers are recognizing that the credit card is a wonderful financing vehicle," Mr. Mello said. "Consumerism is starting to hit the U.K."

Because British banks usually charge interest rates of 23% to 24%, American issuers have been able to make a splash simply by charging less. U.S. rates average 17% to 19%.

U.S. banks have also undercut their British counterparts by eliminating annual fees and introducing cash back and rewards programs.

"The basic credit card techniques that are successful in the U.S. are effective outside the U.S.," said James Shanahan, a consultant in the Newark, Del., office of Business Dynamics Consulting. "They are changing the way business is done there-they're upsetting the apple cart."

As a result, Britain's High Street banks have watched their market shares erode at a time when the overall credit card market is growing.

According to Cards International, a worldwide newsletter on the plastic cards industry published by Lafferty Publications Ltd., the combined market share of Britain's biggest card issuers-Barclays Bank, Lloyds TSB, Midland Bank and National Westminster Bank PLC-fell to 65.3% in 1997, from 84.9% in 1989.

Barclays alone has seen its market share decrease by almost 10% since 1993, prompting the bank to restructure its card division and formulate a three-year plan to lay off more than 1,000.

This move-coupled with a general shake-up at Barclays that led to the resignation of its chief executive, Martin Taylor-may have spurred the report that Barclays' card portfolio might be up for sale.

David Gagie, marketing director at Auriemma Consulting Group in Westbury, N.Y. - formerly the head of marketing for Lloyds TSB credit cards in Great Britain-scoffed at the idea of Barclays selling "its family jewels."

"I would be amazed, because it would mean handing over an area where they have phenomenal expertise that is extremely profitable," he said. "Even with their recent difficulties, they are still a global player by any standards."

But some analysts say Barclays is strategically vulnerable.

"They might have other banks approaching them," said Jonathan Gollins, analyst at Fox-Pitt Kelton in London. "The fact that the bank is in a transitional period could make it vulnerable to overtures."

Barclays and other British banks are now aware of the U.S. credit card invasion, and they are fighting back by offering lower rates for big users of their cards and waiving annual fees for good customers.

For example, Barclaycard will lower its interest rate to 18.9% for cardholders whose monthly charges exceed $825..

"U.K. card issuers believe they can compete effectively by leveraging their core banking relationships and their distribution channels," Mr. Gagie said. "But they are now aware they need to sharpen up their act to be fully effective against significant U.S. players-particularly the aggregate of them."

Eventually, Mr. Gollins said, "fees in the card business here will reduce. Competitive price erosion will take place."

Because only half of the British population have credit cards, bankers believe there is still room for new issuers.

After seeing its competitors succeed, Bank One Corp. plans to enter the British market. Its first cards will be issued within the next few weeks, the bank said, and an operations center in Cardiff, Wales, will open soon.

Bank One will join a group of U.S. issuers that has already been experimenting with ways to make their products more relevant to British consumers.

Household's HFC unit, for example, was set up in 1994 to issue the bank's popular General Motors card. The card, with no annual fee, had an interest rate 4 percentage points lower than those of British banks and broke the British mold by offering rewards: rebate points toward a discount on a new car.

Household, of Prospect Heights, Ill., then teamed with British Gas to issue the "Goldfish" card, which has a 19.8% interest rate and gives rebates that can be applied toward gas and telephone bills. The name-and goldfish pictures on the front of the card-are simply meant to be cute and catchy.

Last year, Goldfish was the fastest-growing card in the U.K., accounting for 18% of new cards.

"Cards like Goldfish have been so successful that the established players have been forced to react," said Martin Rutland, director of corporate communications for HFC Bank in Windsor. "For the first time they've had to remove annual fees and become more competitive on rates."

American Express, which has long offered charge cards in overseas markets, has begun to issue credit cards in some foreign countries as well. The Amex blue card, first introduced in Asia as a product for the under-35 set, became available in the United Kingdom last May.

The blue card offers a 9.9% annual percentage rate on balance transfers and 19.5% annual interest on new purchases. It also gives a 1% cash back rebate, which rose to 5% last month in a program designed for the holiday shopping season. An American Express spokesman in London said the blue card exceeded expectations, reaching its yearend targets after only four months.

Other companies have succeeded in the British market by offering extra- low rates, which experts say may signal the start of the type of "teaser rate war" now being waged in the United States.

Capital One and People's Bank offer cards with 6.9% introductory interest rates on new purchases and balance transfers; the rates jump to 17.9% after a certain period.

Michael Auriemma, president of Auriemma Consulting, said U.S. issuers can gain market share in Great Britain without the low- pricing schemes.

"One of my great disappointments is that as issuers have gone to the U.K., they've resorted to the same tactics that we have here," Mr. Auriemma said. "They've brought teaser rates and low price to the U.K. more quickly then it needed to happen in the general flow of things."

Capital One, of Falls Church, Va., established itself in the U.K. in 1996 with a marketing office in London and an operations center in Nottingham. The company will not say how many cards it has issued, but it expects to increase its U.K. staff from 500 to 900 next year and is investing $50 million in the operations center.

"We've managed to change people's perceptions here," said Patrick Nelson, head of corporate communications for Capital One in the U.K. "Now they think, 'My card doesn't have to be from a High Street bank anymore.'"

People's Bank of Bridgeport, Conn., is the smallest U.S. bank to make its name in the British market. People's opened its U.K. operation in 1996 and its business there has grown steadily.

In September, People's began issuing an affinity card for the Bounty program, an information and support group for new mothers. Bounty cardholders can put their baby's picture on the front of the card.

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