By Andrew R. Johnson
Barclays PLC's (BCS, BARC.LN) U.S. operation is getting into the online-banking business as it works to diversify funding for its growing credit-card operations.
The British bank said Monday it is offering a high-yield savings account and certificates of deposit through its Barclays Bank Delaware subsidiary. The online-only products are the first deposit accounts Barclays has offered in the U.S. since the early 1990s, when it exited the branch-banking business here.
Barclays hopes to cash in on demand for online banking, a business that has attracted other credit-card lenders including Discover Financial Services (>> Discover Financial Services) and Capital One Financial Corp. (>> Capital One Financial Corp.), which recently bought ING Groep N.V.'s (ING) U.S. online bank in a $9 billion deal.
The move should also enable Barclays to more cheaply fund its expanding credit-card portfolio, which reached $12.15 billion in loans last year.
"If you look at the liability side, this is going to play an important role in that growth," said Steve Carp, managing director of deposits for Barclays US. "Retail deposits are certainly one that has a lot of supply and is one we felt like it made sense to tap into."
Barclays, which has no branch presence in the U.S., funds the majority of its credit-card loans mainly through intercompany funding from the parent company and brokered deposits, Carp said. Such deposits are generally considered more volatile than retail deposits, which are "considered more sticky and higher quality," said Don Fandetti, an analyst with Citigroup Inc. (C).
Over time, it plans to shift this mix and may look to securitize card loans. The securitization market shut down during the financial crisis, which prompted other lenders to seek retail deposits. Accounting rule changes that took effect in 2010 requiring lenders to bring certain securitized loans held off their balance sheets back onto their books further pushed card issuers to seek deposits.
"It's important for the U.S. business to be self-funded," Carp said. "That's a goal we're working toward."
Barclays was the 11th largest credit-card lender in the U.S. last year, growing its outstanding loans by about 17%, according to the Nilson Report, a payments-industry newsletter. It entered the U.S. credit-card market in 2004 with its acquisition of lender Juniper Financial Corp and has since tried to grow partly through co-branding by issuing credit cards for Barnes & Noble Inc. (>> Barnes & Noble, Inc.), US Airways Group Inc. (LCC) and other partners.
Barclays's move into online banking comes as Capital One, Discover and American Express Co. (>> American Express Company) are growing their online businesses. Discover offers savings accounts, money-market accounts and CDs and is planning to offer checking accounts this year. The credit-card lender has grown its consumer deposits to more than $27 billion from just over $3 billion in 2007.
Business lender CIT Group Inc. (>> CIT Group Inc.) started an online bank in October that offers savings and CDs, and more recently General Electric Co. (>> General Electric Company) said it is buying MetLife Inc.'s (>> Metlife Inc) online-banking platform and $7.5 billion in deposits to help fund its commercial finance business.
"The market for deposits is big and thriving," said Dan Geller, executive vice president for Market Rates Insight, which tracks deposit products. "Consumer deposits, not just for online banks that fund credit cards but in general, are the cheapest and most cost-effective ... funding."
-By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214; [email protected]