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Barclays PLC’s Secret Weapon

BarclaysMany investors know about Barclays’ (LSE: BARC) (NYSE: BCS.US) retail and investment banking operations. However, the bank has another venture that contributed a quarter of profit before tax last year: Barclaycard.

Top ten provider

The Barclaycard brand is not a small undertaking. Indeed, many investors will have heard of the brand, or own a Barclaycard themselves.

Barclaycard is one of the world’s top ten credit card issuers. The business handles around half of the credit card payments within the UK and South Africa. Additionally, Barclaycard is the number one credit card issuer in Africa and Europe.

But that’s not all. Barclaycard, due to its size and scale, is growing rapidly, contributing an ever increasing amount to Barclays’ bottom line.

For example, during the past three years Barclaycard has added over seven and a half million customers. Along with this growth, customer balances, which Barclaycard earns interest on, have jumped 41%.

In total, the value of payments processed by Barclaycard increased by 8% during 2013 to £254bn.

Continued growth

However, despite the impressive growth achieved last year, Barclaycard is not ready to slow down just yet. The business continues to chase growth through acquisitions and joint ventures.

And the most important of Barclaycard’s current joint ventures is with Transport for London. Specifically, Barclaycard is working with TfL to develop the infrastructure for the acceptance of contactless cards for over 6.5 million bus journeys in the UK. A contract to develop contactless payment for the London Underground is likely to follow.

With these growth initiatives, that Barclaycard is confident that it will meet a target of £5bn annual income by 2015. With a first quarter income of £1.2bn, the company is well on the way to hitting this target.

Outperforming

There’s no denying that these metrics are impressive but why is Barclaycard Barclays’ secret weapon? Well, put simply, Barclaycard is Barclays’ most profitable business.

In particular, during 2013 Barclaycard’s return on equity – a key measure of bank profitability – stood at 19% and the division reported a net interest margin of 8.19%.

In comparison, Barclays’ UK retail banking business, reported a return on equity and net interest margin of 7% and 1.24% last year. Investment banking return on equity was less than 5% during the first quarter of this year.

Further, during the first quarter of this year, when Barclays as a whole reported a 5% fall in adjusted pre-tax profit, Barclaycard’s pre-tax profit surged 17%.

Overall, income from Barclaycard accounted for 24% of Barclays’ pre-tax profit for full-year 2013, only Barclays’ investment bank made a bigger contribution to the group’s bottom line.

Should you buy in?

Still, only you can decided if Barclays fits in your portfolio and I'd strongly suggest you look a little closer at the company before making any trading decision.

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Rupert does not own any share mentioned within this article.