Barclays announced it was buying credit card brand Goldfish for £35m last week, just days after Egg’s new owner Citigroup caused outrage by axing more than 160,000 accounts.
Yet a decade ago Goldfish and Egg were the darlings of the financial services industry. The credit card brands threatened to turn banking on its head, eschewing business suits and statistics in favour of crowd-pleasing names and a friendly consumer face.
Despite initial aggressive acquisition activity, both businesses remained loss-making and under new owners both saw in the New Year with ambitious relaunch plans aimed at revitalising their brands and adding new customers.
Goldfish hoped to kick-start an era of brand investment, and Egg was looking to get serious under the new ownership of US giant Citigroup. But both have since hit the buffers; one the subject of an acquisition bid, the other embroiled in a public relations disaster in an industry deemed to be “plateauing” and in the shadow of a global “credit crunch”.
For Goldfish, 2008 was to be the year the brand was re-established after years of under-investment and several changes of ownership. Now, it seems likely that under Barclaycard the Goldfish moniker will be scrapped.
The launch this week of a credit card comparison site by the Office of Fair Trading may well accelerate such a plan, says Jo Parker, chief executive of financial services agency Teamspirit. She points to a “new era of transparency” that could “completely undermine the pulling power of credit card brands”. Parker expects the site and the more difficult economic environment to encourage people to shop around.
“In which case, what will be the ongoing value of the Goldfish brand to Barclaycard?” she asks. Few would disagree, although Barclaycard insists that no decisions will be taken until the deal is completed.
Goldfish was the first of a “new breed” of quirky financial services brands. It launched in 1996 as a joint venture between British Gas and HFC Bank, two years before Prudential launched Egg as “the world’s first online bank”.
Since then, however, Goldfish has been beset by a succession of problems. When US giant Morgan Stanley paid £1bn for the brand two years ago, it hoped the deal would give it more resonance in the UK, but within months Goldfish and Morgan Stanley’s own-brand cards were spun off into a new company, Discover Financial Services.
Now Barclaycard is bidding to buy the business for just £35m. The move also throws Discover’s plans to scrap the Morgan Stanley brand and move customers to Goldfish into disarray.
Industry observers say the move is indicative of Barclaycard’s plan to grow in a faltering market. A Barclaycard spokesman admits the £35m paid for 1.7 million customers is considerably cheaper than achieving organic growth through advertising and marketing.
On the surface, a price-per-customer acquisition of £20 looks cheap compared to one external estimate of about £200 per customer. However, a former credit card executive cautions that as much as 70% of Discover’s customer base will be unprofitable. Yet even allowing for that, he says, the buy still makes “good business”.
Another industry source adds: “The benefits it can give them in a market that’s getting tougher to operate in are enormous. It’s a market with increasing levels of churn. But the basics of the are very simple: the bigger the scale, the better.”
Market leader Barclaycard has been restructuring and simplifying its card offering, pointing to its good value premise. It is also diversifying its portfolio, with new launches last year including three-in-one Oyster travel and credit card OnePulse, eco-conscious Breathe and the Football card, which offers interest-free season ticket loans.
Egg, meanwhile, was anxious to escape the shackles of former owner Prudential and showcase a new, more grown-up and profitable brand under the Citi umbrella.
But Egg has come under fire from consumer groups which accuse the bank of cutting off customers who do not make enough money for Citi, a claim strenuously denied by the financial services giant. However, many in the industry see it as “justifiably” ridding itself of unprofitable customers following the OFT penalty charge ruling, a move one observer says will be followed by its rivals “whether overtly or covertly”.
Moreover, the industry is shrinking and many of the smaller brands could be in danger as customers rein in spending. APACS, the UK payment card body, says that in 2004 and 2005 69.8 million credit cards were in issue, slipping to 69.5 million in 2006. A similar figure is expected for 2007 when statistics are released later this month. A spokeswoman sums up the mood, saying that the industry has reached a “plateau”.