Tesco’s – the people’s bank?

Tesco recently bought out Royal Bank of Scotland’s 50% share in their joint venture company for £950 million with a view to aggressively growing its financial services arm: acquiring a number of prestigious non-executive directors and financial services sector ‘names’ along the way.

Could this spell the emergence of a new major force in UK personal financial services, taking advantage of the woeful view in which the current service providers are seen by the public?

Tesco Personal Finance has announced its wish to launch a current account and mortgage operation in the coming few years. The financial services arm of Tesco’s is however seeking a separate credit rating from its parent company, allowing it to borrow directly from the market and enable it to build a sizeable mortgage book.   

Andrew Higginson, Chief Executive of Tesco Personal Finance, is hopeful they will be able to provide a sizeable proportion of mortgage lending from existing customer deposits.

A laudable strategy and one that Tesco’s board would presumably not be supporting if they didn’t think there was money to be made.

In reality do UK customers perceive the rapacious food retailing money machines as anything different from our beloved retail bankers?

If you want an example of a company that is well placed to take advantage of the vitriol the public are pouring on our financial service providers you need look no further than the Cooperative Group.

The Cooperative Stores Group, which recently acquired Somerfield, is supported by their in-house financial services arm (CFS), which in turn is merging with Britannia Building Society.

The mutual status and emphasis on stakeholder value, which are integral to the Cooperative Group value set, are a real, sustainable differentiator which should play well to a public that probably have as much time for food retailers as they do for banks!

We wish Tesco's well with their investment in Financial Services and the laudable attempt to secure jobs for the sector in Scotland. We will watch their progress with keen interest.