Tesco is to open a number of in-store bank branches, in what is a long-expected move to develop a fully-fledged financial services business.
The retailing superpower plans to open 30 branches of what market-watchers expect to be branded Tesco Bank inside existing retail outlets by the end of 2009. Following its first in-store pilot, rolled out in Glasgow in 2006, Tesco expects to open its first three branches in April.
The retailer already offers a number of popular personal finance products, including credit cards, savings and insurance products, through its Tesco Personal Finance business, founded as a joint venture between the supermarket and Royal Bank of Scotland in 1997. Last summer, Tesco bought out RBS’s 50% share in the business for £1bn, in what was widely regarded a precursor to an aggressive expansion of its finance business.
Tesco Personal Finance products will be available through the new bank branches, while the supermarket plans to roll out current accounts within the next 18 to 24 months, pending the necessary IT arrangements. Tesco also hopes to move into the mortgage lending business but the timing of any expansion into the market will be dependent on the wider economic environment, reports the Financial Times.
Many commentators believe the supermarkets could be strong-contenders for the current account market because of their high levels of customer trust, and their market leading customer insight and segmentation techniques. Several other leading supermarkets, including Sainsbury’s, Marks & Spencer and Asda, also operate a range of personal finance products but unlike the proposed Tesco Bank they do not yet take deposits.
Although Tesco’s decision to take deposits has long-been anticipated by industry-experts, it is well-timed to capitalise upon widespread consumer disgruntlement with mainstream high-street retail brands.
In an interview with The Banker in February, Benny Higgins, CEO, Tesco Personal Finance, said that the mainstream financial services industry is poor at rewarding customer loyalty and that traditional retail banks tend to “take advantage of inert customers.” He added: “Tesco has as one of its core values that no-one tries harder for customers. And I think that that is something we must aspire to in the financial services business. We’ll be setting out to reward loyalty.”
Tesco’s move may presage a long-term cannibalisation of the mainstream retail banking industry by other leading retail sectors, including but not confined to the supermarket industry. In February, Gev Lynott, head of Asda Financial Services, told The Banker in an interview that the company’s market research indicates strong support for an Asda-operated current account and that the subject is frequently discussed internally.
Were the supermarket – owned by American retail behemoth Wal-Mart – to move into the current account space, the troubled UK retail banking industry would have to contend with two of world’s largest and most aggressive corporations encroaching on its market-share.
