The Alternative to the Bank

by Mark Johnston

In our last article we revealed that Tesco’s was looking to diversify their banking portfolio even more and had begun steps to offer mortgages at competitive rates, to be “the sort of bank we all used to love”. 

With the banks being asked to pay a compensation bill of around £4.5 billion in relation to the lost Payment Protection Insurance issue, is this the last straw and are borrowers ready to look at an alternative option to the more traditional banks. 

In late April, word from the Tesco group was that they would be offering mortgages this summer and that they will be taking the fight to the major banks.  Philip Clarke, the group’s new chief executive said that “Tesco Bank has the opportunity to be the sort of bank we all used to love”.  He went on to say that he hoped that Tesco Bank would be “the sort of bank you can trust and did a good job for you”.  A strong statement and very good selling point when you stack that up against the success they have achieved within their supermarket business.

MoneyFacts’ Michelle Slade has recently come out and said that “The supermarkets have really shaken up the market, offering some of the best deals, particularly when it comes to personal loans and credit cards.”  Customers will vote with their feet if the supermarkets can offer top notch products along side good customer service.

Tesco is one of the more unique groups that is in a financially excellent position, they can actually back all of their own products outright.  When Tesco Bank was started, they were half owned by the Royal Bank of Scotland (RBS) and there is a rumor that during the darker days of RBS in 2008, it was strongly suspected that Tesco bought out the RBS share for £1 billion. 

Philip Clarke, the group’s new chief executive said “We got into banks 11 years ago, and now we own all of it. We’re in charge of our own destiny.”  If it all goes well then Tesco will add mortgages to their already substantial financial product portfolio of insurance, credit cards, loans and savings products. 

Private Finance’s Melanie Bein has offered some advise to Tesco; “The supermarkets may pride themselves on their customer service but giving advice on mortgages is very different from making sure enough tills are open during busy shopping times,” “For most people, the mortgage is their biggest financial outgoing so it’s important that they get it right. If Tesco can really compete on pricing then it could be a huge success.

“There are many people who have quite modest mortgage requirements who perhaps don’t want or need advice. But for anyone wanting something a bit more complicated – a larger loan, say, on an interest-only basis, paid for using bonuses – Tesco won’t have the answer.”

Sainsbury’s are a second significant rival on the mortgage market, they currently offer credit cards, saving products and various insurance products but they are underwritten by Axa, First Assist and Legal and General.  There is a reward scheme where customers can earn point to save them money on future purchases and Sainsbury do offer discounts for buying online.  Paul Lawler of Moneysupermarket said that “The supermarkets are trying to go one better than the banks by doing things a little differently,” and went on to note: “Take Sainsbury’s Gold credit card for example. It doesn’t charge for cash withdrawals, which is virtually unheard of in the credit card market.”

Whatever the moving and shaking at the moment, one fact is clear – Supermarkets will start to offer mortgages at very competitive rates and it’s up to customers to investigate and make informed choices against established banks.

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