Barclays' digital bank bet in US fades under cost pressures

London

JES Staley is turning away from his ambition to build a Barclays Plc-branded digital consumer bank in the US.

The London-based lender spent several years working to expand beyond its card partnerships with brands such as Uber Technologies Inc and American Airlines Group Inc. Mr Staley, who has tightened cost controls to hit profitability targets, said in a recent speech that the plan is now looking "extremely expensive". The bank will now stick to its more affordable co-branded offerings.

"We have slowed down the building of a Barclays-branded digital consumer bank," Mr Staley said at a conference in New York this month, which wasn't previously reported. "We want to build our unsecured consumer loan book in the United States not off the Barclays brand, which would be extremely expensive to create on a national scale, but on the brand of American Airlines."

Mr Staley said that, nevertheless, "we love the US consumer business".

The pivot comes after a management overhaul at the bank earlier this year, when Ashok Vaswani took on a newly-created role as global head of consumer banking and payments, including oversight of the US cards business. The business sits in the consumer, card and payments unit, which makes about a fifth of Barclays' revenues.

Analysts at UBS Group AG said in July that they expected the bank to rein in its US card goals to just co-branded services. "As a result, Barclays avoids the challenge and expense of direct consumer acquisition," they said in a note to investors. However, this leaves the bank vulnerable to losing some partnerships to better positioned and tech-savvy competitors, they added.

Mr Vaswani is reviewing his new unit with a view to cut costs. Card veteran Shane Holdaway left in May less than a year after he joined, and some of his responsibilities were placed with Barry Rodrigues, head of the Barclays US consumer bank. The changes are part of Mr Staley's cost reductions across the group, including cuts to bonuses at the investment bank this year to offset an increase in expenses at the consumer, cards and payment unit. Barclays is also facing pressure from activist investor Edward Bramson, who has said he is willing to give new chairman Nigel Higgins "an opportunity to fix the thing himself without our assistance".

While Barclays lowers its online ambitions, rivals such as fast-growing British digital bank Monzo are taking taking first steps in the United States. Digital banking is a key focus for lenders such as Royal Bank of Scotland Group Plc, Banco Santander SA, Standard Chartered Plc, which have recently created standalone online offerings in various markets. BLOOMBERG