Tesco, a British-based international grocery and general merchandising retail chain is progressing towards creating a standalone bank after making its financial services division fully independent.
Its vast customer base, extensive store network and solid brand reputation give the retailer a competitive edge over some of its potential rivals.
Tesco has signalled its intentions to progress further into the retail banking market back in July 2008, when it bought RBSs 50% share in Tesco Personal Finance (TPF) for GBP950m. Since then, the supermarket giant has reshaped its TPF division by appointing Benny Higgins, the former head of retail banking at HBOS and RBS, as the new chief executive.
Higgins plans to make TPF a fully established retail bank within the next three years, aiming for an initial profit of GBP1 billion.
The standalone bank will offer current accounts and mortgages among other existing financial products. This move makes TPF a direct rival to small banks and building societies.
According to Intangible Business, Tesco has three key advantages over many smaller banks and building societies. This includes existing knowledge of a large customer base, a 2,000 strong network and the most valuable brand on the high street.
Clubcard, Tescos loyalty card system, has revolutionized retail through the collection of customer data and tailored promotions. This simple and effective offering will certainly be integrated into the newly formed retail bank. It will also provide customers with financial products specifically suited to them.
On the other hand, the large store network will potentially lure many customers away from local building societies. Finally, Tescos safe and reliable reputation makes it an attractive alternative to many weakened financial players, which have suffered from a major loss of customers confidence.
Smaller banks and building societies need to offer niche products to maintain a steady customer base to compete against the newly formed Tesco bank. For example, the Co-operative Bank offers customers ethical banking and was voted the UKs most ethical brand for 2008, based on a consumer survey by GfK.
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