Tesco Bank - a double-edged sword for retailers?

News that Tesco is only months away from breaking into mainstream banking with current accounts signals the arrival of real competition in the banking sector.

This is a real opportunity to heighten savvy consumers' awareness of value-for-money applied to banking services, helping  consumers to understand that voting with their feet can be an option in banking as well as all other aspects of their consumption.

Tesco tactics
The introduction of 'grocery tactics' like multi-buys, bogofs, money-off offers and, heaven forbid, loyalty points on debit cards, will all help to break down what remains of traditional banking 'mystique'.
Moreover, the inclusion of user-friendly like-with-like comparisons will encourage consumers to develop and use a basic level of numerical skills in choosing financial products, without having to second-guess the provider.

Traditional banks that do not follow suit will lose business to those that are not afraid to clarify their offerings.

The opportunity
There are 15 million Tesco Clubcard holders of whom 6.5 million are loyal and regular users. Tesco needs to converts only a fraction of them to make a sizeable dent in the other banks’ business.

All Tesco have to do is run an efficient, value-for-money service that delivers no-quibble financial products that just exceed expectation, at fractionally less than what it  costs elsewhere...

In the process, Tesco might usefully benchmark itself against the Coop Bank, a competitor that is perceived to have emerged from the global financial crisis with its reputation untarnished.

But...

The sting in the tail is that having sharpened their ability to assess value-for-money and gained more confidence with the numbers, the savvy consumers will then apply this incremental savvy to their regular shopping, and thereby raise the retail game in the high street.

A really incremental gain for Tesco, if they play their cards right...

Breaking the Rules in Supermarket Banking

The succession of own-goals by the traditional Big Four banks and daily revelations of fresh abuses of trust, have provided unprecedented opportunities for supermarket banks to grow market share in financial services...
However, keeping that share will depend on breaking the following self-destruct rules established by traditional providers:

• Hook ‘em in and ‘abandon’ them within the mix: great introductory deals for new customer and then revert to uncompetitive terms
• Exploit habit: Most people assume that their salaries will automatically appear in their bank accounts, direct debits will be paid on time and they can withdraw their own money from a cashpoint as required
• Inertia optimisation: make every move complicated in order to reinforce a perception of being held captive
• Establish standards-in-common with rivals to ensure a move elsewhere is not worth the trouble (collusion? See LIBOR)
• Avoid the personal touch via use of retro-IT automation, all geared to re-inforce the above
• Reduce comparability of offerings and exploit the customer’s numerical dyslexia
• Establish performance reward-mechanisms that operate out-of-phase with actual results
• Ignore the threat of efficient online everything
• Target the un-savvy consumer, forgetting  that all consumers are savvy, given the right help and encouragement
• Forget the basics, focus on cross-selling before establishing and deserving trust…
• Remember the customer is never right…

Easy? 
But what if the above rules are a pre-requisite of successful (i.e. profitable ) high street banking?
In other words, perhaps a whole new business model is required using customer-centric operations, dedicated to meeting shopper-needs and transparent, defensible and competitive prices, where proof of repeat business, in retrospect, becomes the only basis for reward of all stakeholders…
In which case supermarkets start with most of the aces already in their hands…

A euro parable: the couple with a joint account

Increasing the bank-leverage of a pre-nuptial joint account by adding extra family members and strict rules of compliance can benefit all, at first…... Adding a joint credit-card guaranteed by richer family members can appear to provide a short term solution to personal financial ‘mis-behaviour’ of those family members who in return promise to mend their ways via unsustainable cut-backs…
Attempts to eject problem members can cause the bank to threaten closure of the entire joint-account, resulting in core-members having to re-mortgage to prevent collapse… If you really want to understand how close the euro is to collapse, read this fascinating parable on the FT site. 
In other words, whether you are buying or selling, you owe yourself a couple of ‘what-ifs’ on the unmentionable, while others hope something will turn up, whilst awaiting an announcement from Brussels…
Meanwhile, have a real-world weekend, from the NamNews Team!

Calculating Personal Inflation by ignoring the government basket-case…

Those of you munching pineapples while awaiting tomorrow’s delivery of your iPad3, and freeing up the necessary 50% of waking hours by sacrificing high-level DIY projects via the postponement of the purchase of a new ladder, may find that government measures of inflation will in future provide a more accurate reflection of your version of the rising cost of living.

However, if you are like the remaining 99% of the population, an alternative approach may be necessary…

The monthly inflation figure is essential in gauging how the nation is doing but it’s largely irrelevant and different to individuals.

That’s because the basket of goods the Office of National Statistics measures to monitor prices is a general one.

Simon Read in the Independent offers a simple way to calculate how inflation is hitting your finances:

-       Take a bank statement from a year ago and compare it to today.

-       Look at the things you have to spend on every month – travel costs, energy bills, phone, broadband, food, etc 

-       Add up how much you spent then and how much now

-       Work out the difference as a percentage of last year’s figure

This will give you a rough idea of how much inflation really is ravaging your finances.

Your bank manager will supply the decimal points…

Tesco Banks on Financial Services

This autumn Tesco will launch a high-profile advertising and mailshot campaign to tell its 20m customers that it wants to be their bank of choice as well as their favourite supermarket.
It will be trying to get its shoppers to sign up to its new savings account as it seeks to expand its 6.3m account base. Sir Terry Leahy has promised to build a “people’s bank” by capitalising on public disillusionment with traditional lenders. Next year it will expand its offering to mortgages and current accounts.

Whilst no one underestimates the infrastructure requirements (putting together regulatory teams, risk teams, compliance teams) necessary to operate as a trustworthy bank, Tesco has been helped by the fact that the global financial crisis has caused competing banks to level the playing field via a series of own-goals that have destroyed any residual trust by the public in financial service providers and banks in particular. Moreover, the savvy consumer is becoming more financially astute, and can appreciate the fact that banks charging 4 per cent for a fixed-rate mortgage when Bank of England base rate is 0.5 per cent and they pay just 0.23 per cent on consumer savings is a major abuse of power. This has to provide a major window for Tesco in the sector.

In these circumstances, Tesco simply has to build and maintain a financial competitive-edge ( i.e. offer slightly better rates, and gradually improve these rates as traditional banks are forced to follow, in their efforts to recover inevitable loss of share to Tesco). The rest is a no-brainer in terms of the provision of levels of personal service that will easily differentiate Tesco from any retail bank in the country…

However, the real challenge for Tesco will be to manage consumer expectation by growing their banking service slowly rather than at high speed (i.e. resist 'knock-out' interest rates).This opportunity will continue to be available as long as traditional banks remain in denial, and patently out-of-touch with customer-need.

A Gap in the Banking Category?

“Banks have tended to treat loyalty not as something to be rewarded but essentially as something that can be exploited. They trade on inertia”
"Every business talks about putting customers first, but this really is at the heart of everything Tesco does"

Ex RBS, HBOS and Standard Life Benny Higgins, Head of Tesco Banking, in an article in The Sunday Times, sums up why Tesco and the grocers are going to capture a sector that still thinks banking is about banking. Bankers should reflect on the formerly 'specialist' petrol sector, where the 'shopkeepers' now have a 40% share…anyone still in doubt should check out the French petrol market where over 60% is sold via grocers.

Since buying RBS’s half-share in the Tesco-RBS joint venture in 2008, Tesco has set its sights on creating a fully fledged bank that will generate higher profit margins than its core grocery business. In a short time Tesco has attracted more than 6m financial-services customers, taken 8% of the credit-card market and become the UK’s sixth-biggest motor insurer. It also has more than 2,700 cash machines and says that they provide £1 in every £8 in circulation in the UK. In the past year, savers’ deposits have increased by 28% to about £4.5 billion.

Still small fry, but dangerous for bankers to underestimate Tesco's banking potential. The target market is Tesco’s supermarket customers. The stores get 20m visitors a week and there are 15m people in the UK with a Clubcard loyalty card…..

However, there are cautions here for suppliers in food and non-food categories.

Tesco are now competing with traditional bankers that have never had to compete, in a category that is more profitable and exciting than traditional grocery categories. Tesco's other key focus is upon overseas development.

This means that UK suppliers now need to analyse and demonstrate the financial impact of their brands on retailer profitability, in order to grab and hold a share of Tesco's mind-space…more than ever before, and fast.

Grocery-banking, success-in-waiting?

News that Tesco plan to open banks in 30 branches by the end of 2009 should not be news.
In fact the germ of the idea could have been seen in UK research where consumers, when asked who they would trust most with their money, most indicated that they would trust the local supermarket manager in preference to the manager of the local bank….
And that was 15 years before the current banking crisis destroyed consumer confidence for generations…
In fact, three years ago, Swiss retailer Migros launched Migros bank The bank did not pay its top bankers bonuses. Nor did it engage in risky international investments. Instead it focused on collecting deposits and then turning those into low-risk loans, for consumers who tended to use the group for their grocery shopping. That has turned Migros into one of the fastest- growing private sector banks in Switzerland, if not Europe..
Good retailers are trusted more than banks, carry no 'banking baggage', are good negotiators, focus upon cost-cutting reflected in low prices, pay their top people by results, and focus upon delighting their customers to encourage repeat visits…
Most importantly, they understand cash, whilst banks may understand 'quantitative easing', the same banks appear to have lost touch with the meaning of cash…

Even before the banking crisis, this was a no-brainer…!!
And if you think they were pretty focused on cash, financial measures and profit drivers before, watch 'em from now on…