Barclaycard’s recent $293 million (€240 million) acquisition of Juniper Financial from Canadian bank CIBC may not be the leap the credit card unit of the UK’s sixth-largest bank had planned, but does provide a long-sought after point of entry into the $700 billion US credit card industry.
With 700,000 credit card accounts and $1.4 billion in receivables, Juniper is some way off Providian Financial, the seventh-largest US credit card issuer that Barclaycard unsuccessfully courted earlier this year. However it is one of North America’s fastest growing issuers, establishing its market position in just four years. Although a full service credit card issuer, Juniper specialises in co-branded and affinity cards for companies and not-for-profit organisations and has partnerships with Gulf Petroleum, Best Western Hotel Group and Midwest Airlines.
The business is currently loss-making and is expected to remain so over the next two years as Barclaycard spends between £70 million and £100 million (between €57 million and €82 million) annually on expanding the business. However, it is targeting a pre-tax contribution of around $150 million within three years.
Barclaycard is likely to continue to focus on issuing co-branded and affinity cards, which accounts for almost one-third of all credit cards issued in the US and is one of the most rapidly growing segments of the US credit card market. It is also highly likely to experiment with using its own brand, which has already demonstrated considerable ability to travel across borders in Europe.
The Juniper acquisition brings Barclaycard’s international business up to around 2.6 million cards and receivables of £1.6 billion. Barclaycard is one of three lines of business which Barclays believes have the potential to become international operations. The other two are its investment banking business, Barclays Capital, which has a strong position in fixed income capital markets, and Barclays Global Investors, which has a dominant position in indexed funds.
A key strategic aim is that “within 10 years the international credit card business of Barclaycard should be as meaningful a contributor to the group as Barclaycard UK,” which has 10.8 million cards in issue and receivables of £9.3 billion. In the first half of 2004 Barclaycard International increased its pre-tax profit by 23 percent to £73 million, comprising 17 percent of the $423 earned by Barclaycard as a whole.
Number one in Europe
Although it is the number one player in the European credit card market, Barclaycard has lagged behind UK rivals HSBC and Royal Bank of Scotland in the US credit card market. HSBC bought top ten US credit card issuer Household Financial last year, and earlier this year Royal Bank of Scotland bought the credit card portfolio of Connecticut-based People’s Bank, which it plans to integrate into its New England subsidiary Citizens Financial.
Royal Bank of Scotland has since bought Charter One, which combined with Citizens makes it a top ten US bank, and US merchant acquirer Lynk Systems, making it the third-largest merchant acquirer globally.
According to some commentators, the Juniper deal will have to be the first of many, if Barclaycard is going to make a serious impact in the US market. “You can’t operate in the US without scale,” commented Craig Maurer, a specialty finance analyst at Fulcrum Global Partners, who defines scale as between $30 billion to $40 billion in managed receivables. “I think [Barclaycard] will return to looking at Providian at some point,” he added.
Barclaycard is paying CIBC a premium of 15.2 percent of receivables, somewhat lower than the industry norm of 20 percent, reflecting the fact that Juniper has yet to turn a profit. Royal Bank of Scotland recently paid a similar multiple (15.5 percent) for People’s Bank’s shrinking portfolio.
Source: European Banker
