Magazine article American Banker

Barclays Testing Combo Account: Card Plus Loan

Magazine article American Banker

Barclays Testing Combo Account: Card Plus Loan

Article excerpt

Barclaycard, a unit of the London banking company Barclays PLC, is pilot testing a product that combines a credit card with a personal loan.

The "Combinations" account lets consumers transfer some or all their card debt to a lower-interest loan three times a year. Payments made above the required minimum -- 3% of the card's balance plus a fixed monthly payment on the loan -- are applied to the card debt.

Ian Barber, a Barclaycard spokesman, said in an interview last week that even though the product was developed largely as a result of an ongoing debate over responsible lending in the United Kingdom, there was also a solid business case behind the product.

"We know that customers with smaller balances are borrowing elsewhere," he said. "So we want to see if ... [Combinations] can help bring that business to us."

Mark Thomas, an analyst with Keefe, Bruyette & Woods Inc. in London, called the product an "interesting" development.

"It's an extra source of income for the bank, and there are significantly lower costs of administrating a personal loan by doing it through the card business," he said.

However, Mr. Thomas warned that the product would not necessarily keep card debt in check in the long term.

"What we've seen with the combination of a loan and credit card is that credit card balances start to pick up again over time," he said.

The British online banking company Egg PLC regularly cross-sells loans to its cardholders, and Mark Maguire, an Egg spokesman, said it sometimes grants loans to cardholders that it might not otherwise have approved. As a result, the credit quality in its personal loan portfolio dropped last year.

"Because the customers were already with us, and we'd seen their track record, we were willing to lend to them," he said.

Egg, which sells a card with a 0% annual percentage rate for six months, offers a 7. …

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