Mortgage bank Alliance & Leicester has agreed a deal to sell off its credit card book. Although A&L has not yet released details of the agreement, it's likely to be an outsourcing deal with a player such as MBNA. As consolidation makes it harder for smaller players to compete in the market, this decision looks like a good move for the bank.
UK mortgage bank Alliance & Leicester announced on Friday that it would sell off its credit card business. The news is no surprise: earlier this year, Alliance & Leicester said it would adjust its strategy to concentrate on core business areas such as mortgages, while non-core business such as credit cards could be sold off.
Other than that an agreement has already been reached to sell the business, few details about the move have yet been released. However, the assumption is that it will follow a similar format to the Abbey National and MBNA deal of 2001, where Abbey National sold and outsourced the management of its cards portfolio to the US mono-line.
The move to outsource credit cards to a third party is a good one for Alliance & Leicester. Credit cards is a volume business, and with a market share of 2.5% in terms of cards in issue, Alliance & Leicester is increasingly struggling to compete with larger market players. By way of comparison, market leader Barclaycard has a market share of 19.9% - with almost ten times as many cards in issue as Alliance & Leicester.
Furthermore, the struggle for smaller players to compete in the UK card market is only set to get harder. The market is currently in a phase of consolidation. In addition to the deal between Abbey National and MBNA in 2001, the last 18 months has seen Associates and Peoples Bank acquired by Citibank and the UK arm of Providian bought by Barclaycard.
This consolidation trend looks set to continue, leading to the fall-out of a number of smaller players from the market. The big will get bigger and the small will disappear.
Related research: Datamonitor, "UK Plastic Cards 2002" (DMFS1446)
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