If anyone was going to break up the cosy club of high street banks it should have been Tesco plc (LON:TSCO). So it is worrying that the retailers’ financial expansion has been put back again. Maybe there are more problems at Britain’s biggest grocer than meet the eye.
Banks are unpopular. Tesco is the national favourite. A third of us shop there. One pound in seven earned goes through its tills. It has diversified from foods into books, electricals and much else: it seems a natural extension for it to become a big banker too.
There are many others trying to fill the hole dug by the Big Five banks but Tesco has the brand and the branches. It doesn’t need to pay impossibly high interest rates. Compare its position with other would-be newcomers such as Metro (slowly rolling out a network from scratch) or NBNK, the quoted shell formed to buy cast-offs from the nationalised banks but which has missed out on Northern Rock, the 300 branches Lloyds has to sell and the 650 RBS must offload.
Instead those nationalised chains have gone to Virgin (which has a brand but no branches) plus Co-op and Santander – existing big banks. But Tesco starts with 2,500 UK shops, as many cash-machines and millions of satisfied customers.
So it is worrying that it has yet to launch the mortgages promised last year and current accounts have been postponed until 2013. By then the momentum may have been lost. All those customers of RBS and Lloyds that are being sold against their will may be looking for a new bank – as might some Northern Rock savers who dislike Virgin – but Tesco won’t be there.
Tesco Bank is up and running with 1,300 staff and £6.5bn of deposits, but it needs to be much bigger and must offer a current account to capture its customers’ considerable cashflow. Selling insurance products is not banking.
The group promised £1bn profit from the bank by 2007/08. It made £583m last year. Yes, banking has changed since 2007, but for Tesco that means opportunities. The crisis made people dislike the Big Five even more and provoked those forced sales at RBS and Lloyds.
Tesco used to be a case-study in efficiency and good management but there have been IT problems in unravelling what started as a joint-venture bank with RBS. But after the problems in offering groceries in the US and the falling market share in the UK core business, the delays in launching the banking operation add to the evidence that this company has eventually lost its touch.
The Big Five may have survived what should have been a nasty attack of competition.