Supermarket giant Tesco yesterday gave notice that it is planning to make serious inroads into the British banking market by considering selling mortgages and offering business accounts.
The signals of intent came as Alex Salmond, the First Minister, officially opened Tesco Personal Finance's new headquarters at Haymarket, Edinburgh as the company said it will expand its workforce there from 250 to 450 by the end of the year.
Benny Higgins, a former head of retail banking for both RBS and HBOS and who has recruited last year as chief executive of the grocery firm's bank, said of expansion plans: “At this stage, we are assessing all the opportunities that lie before us.
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“I think there will be an opportunity to offer customers mortgages.” Asked about business banking services, he said: “There is an opportunity there too.”
Since it was established in 1997 as a joint venture with RBS, Tesco has built up six million customer accounts across a range of 28 financial products mainly covering insurance, savings and current accounts.
It has firmly established itself as a leader among supermarket-based banking brands and last July paid RBS £950 million to take outright ownership. Sir Terry Leahy, chief executive of the Tesco group, forecast then that financial services profits could grow from more than £400 million to more than £1 billion.
With the financial crisis causing a major collapse of public trust in traditional banks, Tesco now seems to have taken big steps towards that target with the number of savings accounts opened with them doubling to more than 500,000 in the last six months of 2008.
Aware of the challenge, RBS chief executive Stephen Hester has begun re-building bridges in Scotland, this week holding a dinner with leading figures from business, the media, and civil servants where he talked frankly about the bank's future.
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Flanked by Judy Murray, mother of tennis star Andy who is sponsored by RBS, he said that the bank welcomed the competition from Tesco as it would force them to sharpen up their act.
But at yesterday's opening, Mr Higgins pointed out that Tesco was well-placed to grab more banking customers with 14 million people using the store's loyalty card and about 60 per cent of the UK population visiting a Tesco store at least once a month.
He criticised traditional banks for their lack of transparency in the pricing and costs of the financial products they offer, adding: “The banks have traditionally not rewarded customers' loyalty, seeing their customers as inert.”
By rewarding loyalty, he clearly saw big opportunities, noting that Tesco credit cards, which give users points on their supermarket loyalty cards, had now gained 7.5 per cent of the British credit card market.
Sir Terry said that the company has now extended its trial of putting banking branches in stores from an initial experiment in Glasgow to another five stores in England. The company has yet to judge whether the profits from in-store financial services are good enough to warrant taking up space for selling groceries and clothes.
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But he underlined Tesco Personal Finance's commitment to Scotland, saying: “There was never any doubt that it would remain headquartered in Edinburgh because of the tremendous reputation of Edinburgh as a centre for financial services and expertise.”
Mr Salmond, a former RBS economist, welcomed the commitment and the expansion of jobs at a time when banks were shedding jobs, saying that in his tour of the Tesco offices he had met several former RBS employees.
Noting that competition in the Scottish banking market had been reduced by the takeover of HBOS by Lloyds TSB and was now a “pressing issue”, he said: “There's no doubt that we welcome more competition in the Scottish banking market”
He added that the Scottish government was looking at ways to assist more competition, especially for business banking.
Mr Higgins said that having the right staff was critical to success, saying: “The need now is to have people with the right values, the right culture and the right focus on serving customers. Those that do will succeed. Those that don't, won't succeed.”