Barclays Bank Has a New Venture... Bicycles?

While in London last week, I came across a great new service sponsored by Barclays bank. The service is called Barclays Cycle Hire and opened in July 2010.

Docking station near Buckingham Palace

The premise of the service is the following: Instead driving your car, taking the underground, walking, or riding your own bike, you can rent a bike from a Barclay's docking station and turn it into a different Barclay's docking station near your workplace, gym, etc. To use the service, you have to pay a daily, weekly, or annual access fee plus a usage fee based on how long you rent the bike for on each trip. I have not run the numbers yet, but the apparent benefits are that one does not have to buy a bike, pay for maintenance and storage, or worry about your bike or parts of your bike being stolen. I rented a cycle while in London for a 30 minute trip and saved about a pound ($1.60) compared to what I would have payed using the underground and got to my destination just as fast.

One thing that I found very interesting was the pricing scheme. See below.

The pricing scheme is clearly encouraging short, quick trips, and heavily discouraging longer trips. They recognize this on the website as well.

"To hire for more than a couple of hours it might be cheaper for you to use a company that specialises in hiring for longer periods."

A ride less than 30 minutes has no additional cost other than the access fee that you pay upfront, whereas if you rent a bike for 3 to 6 hours you have to pay 35 pounds (roughly $60)! No quantity discounts here. For more info on the pricing scheme, click here.

By adding a financial penalty for longer rides, Barclay's is trying to manage the supply of cycles at docking stations so that the service does not lose the convenience factor. Imagine showing up expecting a bicycle and they have all been checked out, the nearest docking station is a 10 minutes walk away, but you need to be at work in 20 minutes. I assume Barclays is profit maximizing here and thinks that this pricing structure will help them the earn the highest return possible on their investment. In addition to potentially losing other customers, longer rides could mean there is a greater chance for the bike to be damaged or stolen by other citizens.

I think Barclay's is really onto something here. I am sure they will need to make adjustments to their model as they gain more experience in this business, but I think they will do very well in a city like London where transportation costs and living expenses are high, and the city is becoming more and more biker friendly. A company called B-Cycle appears to be offering a similar service in the US at a much smaller scale, although the pricing scheme seems to be somewhat different.