WILL challenger banks be mere consolidation fodder asks Terry Murden
TESCO BANK chief executive Benny Higgins once admitted that until it had its own current account he didn’t feel it could genuinely claim to be a bank. Last week’s launch therefore promotes it into the premier league and allows it to compete as a so-called “challenger” bank with the big boys on more equal terms.
The challenge for Higgins is proving he can stay up there and is not constantly fighting among the strugglers. Should he get it right then this will be another step-change in the reshaping of the banking sector.
It’s also a key challenge for under-pressure group chief executive Philip Clarke, whose shareholders will want to be assured that the huge capital required to support a bank is not starving the core grocery business of resources at a time when it faces competitive tests of its own.
Tesco Bank’s customer base is still weighted towards shoppers using its core supermarket business, though the dominance of Tesco in the sector is such that it provides the bank with a huge potential market.
But even this exposure is no guarantee of luring customers from the traditional banks. The old adage that people are more likely to leave their spouse than change their bank account is still largely borne out by statistics. In spite of recent legislation making it easier to switch, and the outcry that followed the financial crisis, most people prefer to stick with the devil they know, or simply cannot be bothered. In any case, there is a prevailing view that all the banks are “as bad as each other”.
This reputational issue is crucial in building new customers. Tesco may be unloved by some, but its brand is ranked higher than the banks and this will work in its favour.
However, the “challenger” banks cannot provide the full service of RBS, Barclays, Lloyds or HSBC and may need to offer something different. Customer service will rate highly and competitively priced products are a given. The extent to which both can be achieved will help determine who stays the course.
Sainsbury, Virgin and Marks & Spencer were among other blue-chip companies already offering financial services before the banking crisis erupted and each one has built on nascent banking foundations in an attempt to offer customers a real alternative. But how much of an alternative? Virgin has effectively replaced Northern Rock, Marks & Spencer is underpinned by HSBC. Peter Griffiths, chief executive of Sainsbury’s Bank, has no plan to emulate Tesco by launching a current account and therefore does not consider Sainsbury’s to be a challenger, more of a savings, insurance and loans institution.
The result of the European Commission forcing asset sales by RBS and Lloyds has been the creation of two standalone banks that will be floated on the London Stock Exchange. TSB is expected to list this week following its break from Lloyds and will represent the biggest shift in the banking landscape since the crisis. Williams & Glyn, carved out of RBS, will follow in the next couple of years.
The test for all these banks and for the customer will be whether more means better, or whether size really does matter. The wheel of competition may eventually turn once more in favour of mergers.
Honour for jam master is richly deserved
SOME notable names were among the Queen’s Birthday Honours, including Standard Life chairman Gerry Grimstone, who received a knighthood for his public service to business and defence. Given his staunch opposition to independence, it will be interesting to know whether the head of one of Scotland’s biggest companies will be getting a congratulatory message from the First Minister.
Other recipients included Ewan Brown, a long-time servant of the financial services industry, who is also knighted, and Jim O’Neil who helped restore some honour to the battered banking sector by receiving an OBE. He stepped down as chief executive of UK Financial Investments, the institution overseeing the taxpayers’ stakes in the bailed out banks, including Lloyds and Royal Bank of Scotland.
But the standout award for me was the MBE for young jam maker Fraser Doherty who, at 24, is
already a veteran of the food industry.
He started making jam at the age of 14 using his grandmother’s recipes. He said it was a way of making some extra pocket money. Now he’s a worldwide phenomenon and just about to start exporting his SuperJam to Japan.
Anyone who gets an opportunity to hear him speak should take advantage. He has a great story which he tells with humour and a level of maturity that would put many professional speakers on the circuit to shame.
Just where he ends up is anyone’s guess – probably back at the Palace when he becomes Sir Fraser – but for now he’s cherishing his award while modestly sharing the honour with the woman who made it possible. He plans to take his grandmother Susan with him when he is presented with it.
There could also be a surprise as he intends making a presentation of his own – giving a jar of his top-selling range to the Royal Family. «