Tesco’s brand power gives its banking plan extra clout

Tesco’s plan to open 30 in-store banks signals that supermarkets are becoming a major threat to the full banking service market, says a report from Defaqto.

The report, Retail Banking: Challenging Times, says supermarkets could become unstoppable competitors if they expand their personal finance offerings on the back of their brand power.

Tesco aims to open current accounts for customers within two years and is expanding its personal lines insurance products. But it has not said whether it intends to muscle in on the commercial SME market.

David Black, principal consultant of banking at Defaqto and author of the report, said: “Supermarkets generally enjoy impressive customer image, brand recognition and the trust of their customers.

“This, coupled with the fact that a member of just about every household has to physically visit a grocery store or its internet site at least once a week, cements the potential attraction.”

Black also believes that with UK banking likely to move to paid-for current accounts, supermarkets could cross-subsidise their operations by offering free full-service current accounts to customers that spend a certain amount in their stores each month.

“This would assist the effective lock-in of such customers to buy the majority of their groceries with that supermarket, and incentivise people to switch to their current account,” he said.

Some brokers have said they don’t believe supermarkets could compete when it comes to giving advice. But in a recent interview with Insurance Times, Alan Sanderson, director of trading for Norwich Union [soon to be Aviva], said: “If Tesco distributes [insurance] products through that banking relationship, then we’d be interested. We’ll watch how it develops.”