Supermarkets making little headway in the financial sector

June 12, 2006

By Peter Kenny

A recent report shows that supermarket banks are still small players in the UK financial banking sector, despite their direct contact with customers.

The report identifies one of the main reasons for their limited impact in the banking sector, current accounts. Current accounts are regarded as essential for any financial institution with ambitions to increase their market share, as a method to draw customers in and enable the selling of other more profitable services.

Another major gap in the services offered by supermarket banks is mortgages. Mortgages account for over 80 per cent of all UK borrowing. As it stands only one supermarket bank offers a residential mortgage.

The three main financial services offered by supermarket banks remain credit cards, personal loans and insurance. Currently supermarket banks only account for 5 per cent market share of UK unsecured lending.

Tesco were the first supermarket to make a move into the financial sector. At the time banks were warned that their core business could be under threat. Tesco, partnered with the Royal Bank of Scotland, currently has over 5 million customers and last year announced profits of £50 million for the six months ending August 2005.

Tesco have enjoyed the most success in the retail-banking sector, however, the same cannot be said for other supermarkets. Marks & Spencer sold its financial services division to HSBC back in 2004 and Sainsbury’s bank is currently loss making.

It is thought that initial optimism overestimated the similarities between retailing and banking while at the same time did not identify that there were major differences in the two sectors that would take time to correct.