Barclays (NYSE:BCS) believes that the future is contactless, and its enthusiastic pursuit of the contactless technology seems to be paying off. The company recently reported that there has been a 150% year-on-year increase in the number of contactless transactions through Barclaycard terminals.  There are nearly 52,000 contactless terminals set up all across the UK by Barclaycard. Barclays’ competitors, including The Royal Bank of Scotland Group (NYSE:RBS), Bank of America (NYSE:BAC), UBS (NYSE:UBS) and JPMorgan Chase (NYSE:JPM) have yet to embrace this new technology with the same level of gusto giving Barclays an edge in this field.
Our price estimate for Barclays stands at $18.30, which is inline to the current market price.
Understanding the Contactless Technology
Contactless cards introduced by Barclays lets customers make purchases of up to £15 ($24) without signing or having to enter a pin. There are about 12.9 million contactless cardholders in the UK, with Barclays debit and Barclaycard credit cards accounting for over 11.4 million of these – an 88% share of the contactless card market. The technology is yet to be implemented in other countries around the world.
Barclays reports that 1.7 million contactless transactions were processed in 2010. These transactions were largely at retailers like Subway, Co-op, McDonalds and EAT where contactless cards allow customers to complete transactions faster while reducing queuing times for the retailers.
So What Does this Mean for Barclays?
Barclaycard contributes to nearly 7% of the company’s value according to our analysis, and the opportunity presented by the increasing adoption of contactless technology could make the division all the more valuable in the years to come.
We currently estimate the amount of Barclaycard assets to increase from its current value of $47 billion to cross $70 billion by 2017; however if the popularity of Barclaycard continues to grow, then this value can cross $85 billion by the end of the same period – a 20% increase over our initial estimates.
At the same time, the Barclaycard loan volume would also increase by about 10% from our initial estimate to reach about $45 billion by 2017. The combined effect of these changes could provide a 2% upside to the company’s stock.
- Number of transactions rise as opportunities to use contactless grows, Barclays News, March 24 2011
Disclosure: No positions