Supermarkets sweep up banking

IT'S HARD to believe that just over ten years ago, the idea of having a credit card from a supermarket was unheard of and the high street banks had a stranglehold on the personal finance market.

All this changed in 1997, when both Sainsbury's and Tesco decided they could interest their millions of customers in taking out credit as well as buying a few tins of beans.

Now, most of the big retailers are in the market, and last October, Greenbee, a new direct services company - including financial products among its range - was launched by the John Lewis Partnership.

As the table below shows, supermarket products often top the list of best buys by undercutting banks using the economies of scale provided by their distribution networks.

The numbers speak for themselves - Asda has around 1.1 million financial services customers, Sainsbury's has 1.5 million and Tesco estimates it now has more than five million customer accounts.

Like other retailers, Sainsbury's has teamed up with established financial services companies - in its case, HBOS is the main partner - to access expertise in the market.

Will Blackett, head of research at Sainsbury's Bank, said: "We have a very strong brand with a lot of goodwill and trust attached. Exactly ten years ago next month, we launched the bank to offer savings, loans and credit cards, but over time we have added to this with such products as car, home travel and pet insurance and Child Trust Funds.

"We're in constant dialogue with customers to improve the quality of what we offer and think this helps us stand out from other retailers. For example, with car insurance we offer a free child's car seat and with pet insurance we'll pay out for more than the standard 12 months."

It has also launched SaveBack to allow customers to add to their savings at the checkout when paying for their shopping with a debit card.

Having your financial services with a supermarket has the advantage of being convenient, as they tend to have more outlets than banks and longer opening hours.

Tesco Personal Finance chose its main partner as Royal Bank of Scotland when it launched and believes it has shaken up the market.

Matthew Dransfield, Tesco's spokesman, said: "We've brought retail thinking to financial services - combining value, quality, simplicity and convenience. We entered the market almost ten years ago to inject competition into financial services and, since then, we have pushed down prices and simplified products. For example, our value car insurance has reduced the cost of comprehensive cover to almost the cost of third party fire and theft. It's a stripped down version of standard cover but it has helped many people protect their cars who might not have been able to afford it."

The John Lewis Partnership wanted to include its financial services products under an entirely different brand and decided on Greenbee - a name favoured by its customers.

At www.greenbee.com people can access financial services, such as travel, home, wedding and events insurance, as well as travel and ticketing services, with more products in the pipeline.

James Furse, Greenbee's managing director, said: "John Lewis had its own credit cards since 2004, so the launch of Greenbee was building on this. By unveiling a new brand we made our ambitions for this area clear. We see ourselves as synonymous with quality and value and people have a real trust in us. We're expanding our range - for example life insurance is coming in the spring in partnership with Axa - in line with feedback from our customer research."

Initially, the range of financial services products offered by retailers was narrow, but they are constantly moving into new areas. For example, Asda is trialing the sale of houses at its online notice board.

Gev Lynott, director of financial services at Asda, said: "We're currently trying this service out around Teesside and Tyneside but would look to roll this out to other areas. Scotland obviously has a different legal system but we wouldn't exclude Scottish customers if we could find the right partner. Mortgages are another area we're looking and I've been talking to possible providers in the last 12 months."

Tesco Personal Finance recently launched health insurance - in partnership with AXA PPP - promising to undercut big players, such as BUPA and Standard Life Health Care.

But, experts are recommending people tread cautiously before buying what is by its very nature a complex product direct from a supermarket without getting impartial advice.

Tom Munro, of Larbert-based independent advice firm Tom Munro Financial Services, said: "Premiums for this type of private medical insurance may be cheaper, like any product you buy direct. But a detailed medical questionnaire completed thoroughly and other advice, including a run through of the state benefit entitlement, should always be considered first."

Tesco's Dransfield argued: "We've made our product very clear - and it's 33 per cent cheaper than the competition. Hopefully, people who may not have previously considered health insurance will see it as an option."

Asda decided to offer customers independent advice with the revamp of its life and protection offering. From 29 January, it is teaming up with Lifesearch, a specialist adviser, to offer a range of life insurance, critical illness, income protection and family income benefit products.

Lynott explained: "We wanted to be able to offer our customers choice from the whole of the market. We give our customers access to the full range of cereals, and now we can do the same in financial services through a true 'supermarket' service in the life and protection arena."

Lifesearch believes there are flaws in supermarkets selling complex products direct without advice as they do not take individual circumstances into account.

It refers to an Early Day Motion brought before Parliament which "notes with growing concern the dramatic increase in recent years in the sale of life insurance and other protection products on a non-advised basis and the subsequent potential for large scale mis-buying".

Kevin Carr, senior technical adviser at Lifesearch, explained: "While price is a factor, it's not the only consideration. People should realise they don't get a second bite with health insurance. It's not like car insurance where you only really have two options. It's important to take advice and make an informed decision.

"A major problem with buying direct is that two-thirds of people are not aware that buying without advice means they cannot get help from the Financial Ombudsman Service (FOS) if they have a complaint or think they have been mis-sold. There would be no endowment selling scandal if people had bought over the internet 20 years ago as FOS wouldn't have been able to get involved."

There is no doubt that supermarkets have proved a welcome addition to the world of financial services and allow more people to get access to a wider range of competitively priced products. But, if people are unsure about what they are looking for, it would be wise to shop around and seek advice.

COMPETITIVE EDGE CARRIES THE DAY FOR CARROLL

CARROLL Cain, 41, who lives in Leith with her husband Stuart and two children, would recommend considering a supermarket if you're looking for the most competitive products.

Carroll, who works with Royal Mail in Edinburgh, said: "I regularly shop around for the best deals and about eight months ago I opted for Sainsbury's Bank credit card because of the 0 per cent offer. I tend to check the best-buy tables in the press to see who is offering what at the time to help me make a decision on credit cards.

"I also have home contents and car insurance with Sainsbury's. The car insurance is backed by esure who I was previously a customer of. With the home contents, Sainsbury's proved a lot cheaper than my previous provider and I found this out from a promotion included in my credit card statement.

"I'm currently making a claim on my home contents insurance because the roof of my shed blew off in the recent storms. The service so far on this has been great - I just had to phone them and press a few buttons and my claims form was issued."

While she would recommend other people consider supermarkets for their financial services because of the value for money they offer, she's not convinced she would go to a supermarket for something as important as a mortgage, which is more complex and comes with a lot more options to choose from.