Strategy: The U.K. credit card industry in the late 1980?s Essays

1087 Words 5 Pages
1. Why had the UK credit card industry been so profitable in the 1980s? Which factors were the greatest threats to continued profitability?
     At the beginning of the credit card history in the UK there was only one player, Barclays Bank, which started operating the card business in 1966. It didn’t seem a profitable business at the beginning but the major banks were concerned that due to the use of the credit card, the logo of Barclay was appearing everywhere. The main sources of income in the credit card business were the interest paid on debt by the cardholders and the MSC income from the merchants. It also provided a free publicity for the Banks, creating awareness of its presence in different businesses and
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2. Should the industry move to a pricing structure with annual fees?
     Given the changes in the industry, the decreasing interest rates, the changing habits of cardholders, and the reduction of the MSC fees, the introduction of the annual fee seems and interesting alternative.
     Previously the primary source of income was the outstanding debt; however the cardholders were reducing their balances, reducing the income for the banks. The fees will provide the banks with a fixed income. It will also let the banks collect money from the full payers (46% at Barclays and 37% at Lloyds in 1988) that were using the free credit without cost.
     The impact would need to be measured in the customers. With a fixed fee the credit card will become less appealing to some but it can be adjusted with a lower interest rate. The reduce in the interest rate might also benefit the banks from an increase in the outstanding debt if cardholders start using more credit due to lower rates, and if the amount of interest paid over higher outstanding balances exceeds the forgone revenues from the reduced rates in the previous lower balances.
     Another advantage for the banks introducing annual fees, and reducing the interest rate is that they might be able to

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