by Mark Johnston
Tesco, the third largest retailer in the world is set to expand its banking business and hopes it will become a “significant” part of the group’s business. Tesco bank launched in 1997 and has grown steadily since then, they are currently on the verge of launching their own range of mortgages and current accounts in direct competition to banks and building societies.
For some time now, Tesco Bank has made it very clear that it wishes to ramp up its operation by providing a full range of banking services that would allow it to compete with the high street banks and building societies.
Tesco Bank has identified a gap in the market, ever since the financial crisis trust in banks has been damaged and Tesco can see an opportunity to leverage their trusted brand as a retailer into the financial services world.
The supermarket giant is hoping to launch its new mortgage range at the start of 2011. The launch of its current account offering will follow closely in the second part of 2011. A number of reports suggested that Tesco’s mortgage plans were being delayed by issues with the city regulator but the supermarket dismissed them saying the process was “moving along well”.
Before 2008, Tesco Bank was part owned by the royal bank of Scotland which has lead to some issues with systems that Tesco want to move away from. The group is developing its own network that will hopefully allow it to deliver on its planned strategy.
A Tesco spokesman said: “It is critical that we design products which are consistent with our brand: namely, products that are simple, transparent and reward customer loyalty. We plan to submit our proposals to the FSA next month – there has been no change to the FSA process and we expect permission to launch mortgages to be granted within six months of submitting our request.”
“We’re making good progress in the development of other new product launches, including current accounts. These will be submitted to the FSA in keeping with their existing processes.”
Tesco bank is already out performing other banks with profits up by over 13% in the first part of the year. Accounts with the bank have grown over the year’s, a recent report suggested the bank has 6.5 million accounts with revenue up at £474 million.
Darren Cook at a leading financial comparison group said: “Tesco is coming up with some decent deals when the cost of financing from banks is being squeezed. Historically, Tesco has not always competed well against banking peers, but this has changed since it bought out joint venture partner Royal Bank of Scotland in 2008. They’ve got a foothold in the market now and are giving good value, which is good news for consumers.”
Tesco’s major advantage is being able to tap into its customer loyalty, trust and brand recognition especially given that they are not seen as a bank. Although growing rapidly their 500,000 savings accounts totaling £4.2 billion pare into comparison with groups like Lloyds who have 22 million accounts.
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