Launch of current account next year will be worrying retail bankers, writes Jeff Salway
The banking monopoly on the UK high street will finally come under threat next year when Tesco Bank finally launches into the current account market, it has been predicted.
The supermarket bank has been tipped to benefit from the recent turmoil at the Co-operative Bank, previously seen as representing the greatest challenge to the big current account providers.
The Co-op admitted this week that it has lost current account customers following the resignation of scandal-hit former chairman Paul Flowers and revelations earlier this year over balance sheet shortfalls.
But industry experts say competition in the mainstream banking market will be given a significant boost by the arrival of a household name with the potential to target millions of households
Tesco’s belated launch into the current account market next year was confirmed on Wednesday when it announced it was creating hundreds of jobs in its Glasgow and Edinburgh offices. Around 300 extra staff are being recruited to support the current account roll-out in mid-2014, with up to 350 more jobs created over the following two years.
The supermarket giant had been expected to unveil its current account this year, with an eye on the new seven-day switching service that took effect in September.
It is believed that it opted instead to maintain a watching brief to see how the switching service would impact the market.
“It’s good to see that they have now declared their intent and so we will have to await the detail before we know exactly how they plan to differentiate and as such compete with the established players,” said Kevin Mountford, head of banking at Moneysupermarket.com. “There are no doubt a number of consumers who are awaiting meaningful options in the space and if nothing else Tesco Bank already has a meaningful customer base with loads more shoppers to go after.”
At the centre of its new proposition will be the powerful Tesco Clubcard resource, with current accounts likely to include rewards-based features.
Andrew Hagger, founder of Moneycomms.co.uk, said: “If it’s able to incorporate the Clubcard system it could be on to a winner and build a customer base quite quickly.”
Michael Ossei, personal finance expert at uSwitch.com, agreed: “While the finer details of the new account are yet to be revealed, Tesco customers will soon be able to do their shopping and banking under one roof. Regular shoppers will also be hoping for additional benefits linked to the Clubcard.”
That means the bank’s new current accounts are likely to play on convenience and customer loyalty, rather than seeking to entice customers through more complex arrangements such as tiered charging.
“Ideally it will be transparent and straightforward with no hefty fees for unauthorised borrowing,” said Hagger.
“It’s all about building trust and making life easy for customers so a simple user friendly online banking platform that doesn’t fall over every other week would be a good start.”
Savers will be hoping for attractive rates of interest on current account balances, which, despite the in-credit deals offered from Santander and Lloyds, remain relatively rare.
However, the biggest impact of the new addition to the banking market will be in the challenge posed to the incumbents.
Just five banks – HSBC, Lloyds, Royal Bank of Scotland/NatWest, Barclays and Santander – provide 85 per cent of the current accounts open in the UK. Their dominance and the difficulties faced by new entrants prompted the Office of Fair Trading to conclude earlier this year that the market isn’t “working well for consumers or the wider economy”.
But Tesco Bank will be the first genuine mass-market challenger to the big five, according to Mountford.
“Tesco Bank has already attracted 6.8 million customers by offering a range of competitive financial services products from savings accounts to mortgages,” he said.
“We have already seen new challengers enter the market recently, with the likes of the Post Office launching a current account earlier this year, and so now consumers will have even more choice.”