Examination of Witnesses (Questions 820
WEDNESDAY 10 MAY 2000
820. Is it not a fact that there are several
cards, some of which have been developed specifically for the
Internet, going to be confusing to the ordinary man in the street
or the ordinary surfer?
(Mr Potts) The so-called new economy is a high-grade
economy for the vast majority of people who want financial services,
particularly those who use cards, do not want a different system
when they are tapping into their PC from something they use in
a restaurant or in a department store. One of the things we are
concentrating on is making sure that you have a single token piece
of plastic that you can then use on the Internet, if you wish,
as well as using it in a physical environment. Of course there
are additional services that we can add to it on the Internet.
One of the pains today, as you probably know, is if you use your
card on the Internet you have to re-input your details every time,
we have currently on trial a Barclaycard wallet, whereby you put
your details in the wallet once and then whenever you make a purchase
from a retailer or across the Internet you simply have to pay
for it from your wallet. Our approach is to say, how can we make
it easy for our customers to use their card facilities, irrespective
of whether they are buying a holiday from Lunn Poly, buying a
meal in Pizza Hut or whether they are shopping in Amazon.com across
the Internet. However, there will be some customers that are sophisticated
in the Internet world and actually would be happy to have a distinct
method of payment across the Internet. We need to think about
catering for those as well.
821. If I may follow up on the trader issue,
evidence has been put to us that some traders do have difficulties
in getting you to embrace themthis is not Barclaycard specificallyI
am wondering how many a year you turn down and whether you are
very rigorous, indeed. I can understand why, from a consumer's
point of view, you have to protect them but equally the view has
been put that some small traders have difficulty in promoting
their business on the Internet because they cannot go alongside
(Mr Potts) That is a valid criticism of the industry
overall. I have to say it has exercised our minds a great deal.
What we have to tried to do to deal with this is take our existing
process for vetting and say, "How can we make them fit for
the Internet?" Just a month ago we introduced a brand new
service which we called "en@ble-it", it has a little
"e" at the front of enable. It is specifically tailored
towards those smaller business people who want to get on the Internet
and want to trade on the Internet. What we have done is introduced
an assessment process which is twenty-four hours and it is particularly
to deal with this issue, because it is an issue. What has happened
is that the market has moved quite strongly. A number of retailers
have now gone from saying, "We have done the bit of putting
our details the website we now want to trade." The challenge
for us has been, how can we change our processes so we can help
them trade quickly. It is an example of one of the ways in which
822. Do you have any idea of the numbers you
have turned down?
(Mr Potts) I cannot give you any figures. I can try
and find some for you.
823. It would be interesting on this point.
(Mr Potts) Whether we can pinpoint declines in relation
to the Internet I am not certain. I do not know how robust the
information systems are. We could have a go at some information
Lord Woolmer of Leeds
824. Does Barclaycard offer different levels
of protection in different countries? With other cards, what is
the general practice of protection or is there a tendency to tender
the protection to the country of the user. Can you talk us through
(Mr Potts) It is quite a complicated question to answer.
If you take the United Kingdom, several years ago I led an industry
group to try and create a common approach to deal with disputes,
fraud, and so on, in particular a common approach to the Consumer
Credit Act. There are all sorts of practical problems with the
Consumer Credit Act when it comes to credit cards. What we were
able to do at that time, this was 1992/93, we were able to get
some consistency across the industry in the United Kingdom as
to how that would be dealt with. The belief was at that time if
we were able to do that we would be able to get the law changed
in a way which would not be detrimental to the consumer but more
helpful to the card issuers. In practice we were not able to achieve
that. What happened then was a number of members of the industry
went back to their old approach and a small number retained the
common approach that we had agreed at that time, including ourselves,
and since then we have extended the way in which we protect our
customers, by adding voluntary policies. That is the United Kingdom
position. I cannot speak for every market across Europe. Generally
speaking our own policy to our customers in the United Kingdom,
Germany, France and Spain, where we are currently represented,
is broadly the same. We will offer broadly the same consumer protection,
irrespective of the legal differences from country to country.
There are some differences, though, in Germany we still retain
the right to charge a modest sum, the equivalent of the £25
I was talking about earlier in Deutschmarks, but we rarely apply
that. It will not be long before we feel confident and will drop
that. We have not yet extended our on-line charter and promise
from the United Kingdom into our territories overseas but we will
be considering them very soon.
(Mr Potts) Because they are less mature businesses,
it has just been a question of priority in the way we expand our
business. There is no reason why we should not do it and we probably
will do it very soon.
826. When you say they are not as mature, does
that mean you are not able to vet the suppliers, the companies
selling, as though you would in the United Kingdom or you are
not able to vet the credit risk?
(Mr Potts) It is not that. It is purely a question
of timing and how we expand our business. We only opened up in
Spain some 12 months ago, we have a relatively small file there
at the moment, it has not come to the top of the agenda but these
are now coming close to the top of the agenda. We will try to
adopt a consistent policy across all of the countries that we
represent. Ultimately we want the Barclaycard brand to be recognised
as an international brand, in order to support that we have to
have consistent policies.
827. Before I come to Lord Paul's questions,
could I follow up on one of those, my understanding, correct me
if I am wrong, is the use of credit cards in Germany is only about
the 19 per cent to 20 per cent mark of the population. This could
be an inhibitor for United Kingdom companies trying to sell abroad
in Germany on the Internet.
(Mr Potts) The north European countries are less mature
when it comes to credit cards.
828. It is extraordinary.
(Mr Potts) For a country like Germany it is their
history, remember euro-cheques, basically cheque guarantees for
when you are travelling in Europe. They were very strong. They
came out of northern European countries. They migrated to debit
cards in Europe and debit cards are very, very strong across Europe,
particularly in places like Germany. Our experience is that if
we are able to offer a credit card to a German national or a French
national or a Spanish national, or whoever it is, and provided
you tailor it in a way which meets local requirement, the core
is the same but we tailor it around the edges differently to meet
the cultural and legal needs. Our experience is that the credit
card is very popular and is growing in popularity. We are now
either third or fourth in terms of the size of credit card portfolio
829. You said 19 per cent in Germany, what is
(Mr Potts) In this country the usage by adults of
credit cards, that is pure credit cards, not charge cards like
American Express, will be somewhere around 41 per cent, and growing,
it is still relatively low compared to the USA. It is 85 per cent
in the US. In the United Kingdom debit cards have taken up strongly
since they were launched in 1988. Now there are more transactions
by debit cards in the United Kingdom than credit card transactions,
although the average purchase is much higher on credit cards and
people tend to use credit cards across the Internet because they
can get extra protection.
830. When you pay with Barclaycard or any different
card abroad is the exchange the same or very different when it
comes to billing the sterling back?
(Mr Potts) We have an exchange rate charge, which
is 2.75 per cent, we found over the years that that level of exchange
rate is very acceptable to the customers because of the value
that we create, the ease of use of the credit card versus travellers
cheques, the hassle of the currency, the risk of losing currency,
plus the protection of the credit card. We found our customers
are very responsive and happy to pay a surcharge because of the
831. That is not my question, is it competitive
compared to other cards?
(Mr Potts) It varies, every visa issuer can decide
how they price their cards, whatever services they have.
832. So you can have a great difference?
(Mr Potts) Yes, indeed.
Lord Paul: That is all.
Lord Faulkner of Worcester
833. Could I ask about your plans for an Ombudsman?
(Mr Potts) Yes. I cannot take any credit for this
because one of my colleagues in Barclays made the suggestion.
My understanding is that DG XV have accepted the idea of an Ombudsman
or the equivalent country by country and are working out the way
the European-wide network are dealing with dispute resolution.
I understand it is encapsulated in paperwork now and individual
countries are looking at how they can structure this.
834. It seems a bit slow, though.
(Mr Potts) We were delighted that the idea was accepted
and pleased to hear it is making progress. I do not know how it
compares with the speed of the introduction of other initiatives
Chairman: They vary.
Lord Faulkner of Worcester
835. What do you think the Ombudsman scheme
will give to your customers which you do not already give now?
(Mr Potts) In our case it will not add a great deal,
frankly, we are underwriting our customers at the moment. What
it will do is act as a very important release valve for our customers.
There are always situationsthey are very few, I am happy
to saywhere we cannot resolve disputes with customers to
their satisfaction and in those circumstances we will always suggest
that they take their issue to the Ombudsman. There is an independent
review by the Ombudsman. I think as e-commerce grows for us it
will be less important. Practice varies from card company to card
company. I imagine that there will be other card companies where
a harder line is taken in terms of dispute resolution, in which
case the Ombudsman is rather important.
Lord Woolmer of Leeds
836. Can I return to something you said earlier
on, it clashes with something in my mind from earlier evidence.
Take this point about fraud or loss to you on e-commerce business
compared to non-e-commerce business. If you take as a measure
the loss to you on a turnover business how does e-commerce business
compare to non-e-commerce business?
(Mr Potts) I am in some difficulty in giving you a
complete answer to that, the reason is there is no accurate method
of measuring e-commerce turnover at the moment. The reason is
very straightforward, most retailers are not e-commerce only,
they trade in a physical world as well as an e-commerce world.
At the moment we do not have an industry method of identifying
what is a genuine e-commerce transaction. We will have that from
March next year.
837. I am surprised you have not assessed that
(Mr Potts) We can assess the risk. I can partially
answer your question. What I cannot tell you is how much turnover
we have on e-commerce. We are building a system so we can do that
838. What is your best estimate?
(Mr Potts) The best estimate, I can give you an industry
estimate in the United Kingdom, is something like 2 per cent of
card traffic is e-commerce traffic. For Barclaycard I can give
you a pretty good estimate of what our fraud losses are.
839. As best as you can?
(Mr Potts) One per cent.