The announced current account is paying 3% on balances and only charging a monthly account fee of £5 if less than £750 is paid into the account. This is a competitive offer. There are added advantages for Tesco customers who will also receive loyalty Clubcard Points on all spending using the Tesco debit card.
Marks & Spencer beat Tesco out with a current account, having both free and fee-charging versions of their accounts. As with Tesco there will be benefits of being both a customer of M&S and its bank in terms of rewards. There will be some overlap between customers but the big difference is that Marks & Spencer Bank is owned by HSBC and therefore cannot really be seen as a challenger bank.
The launch of the current account by Tesco Bank should represent a real challenge to the big five banks (Barclays, Lloyds, HSBC, RBS and Santander). As an aside, Santander likes to position itself as a challenger but being owned by one of the largest banking groups in the world, coming from the consolidation of building societies (Abbey National, Alliance & Leicester, Bradford & Bingley being the main ones) and with a less than perfect reputation for the service it provides it quite rightly deserves to be clumped in with the other big 4 banks as being just another legacy bank.
There are many reasons why Tesco Bank should be seen as a real challenge to the established players. For starters it is not a small bank – it already has over 6 million customers using its insurance and lending products. All of these customers are potential customers for their current account offering. It also already has a large physical distribution network through its supermarkets. As they are available to savers today customers will be able to make deposits in 300 stores. However this account has been designed to be opened online and customer support will be available on the phone. The bank being designed for digital differentiates it from the likes of TSB, Metro Bank, Virgin Money and Williams & Glyn, which have all come from a traditional branch centric design.
Not only has Tesco Bank been designed from the start with digital in mind, Tesco also has many years experience of running large scale digital operations through its own website as well as operations like Tesco Mobile. This gives it a much better chance of delivering a reliable good customer experience than other challenger banks, particularly the small scale contenders such as Metro Bank, Aldermore and Atom.
Tesco Bank also has the added advantage that through its Clubcard programme it not only has vast amounts of data on both its existing and potential customers but it also has years and years of experience of using that data to drive business. Unlike the new start ups and the established banks so-called ‘Big’ data is not a new topic for Tesco. This should give it significant advantages given its customer insight in terms of providing customised propositions to its customers.
Tesco Bank is also not weighed down by legacy. They don’t have the reputational problems from the mis-selling of PPI and the high levels of complaints which the Big Five banks have. They can position themselves as truly a new entrant. While TSB and Williams & Glyn may have the liability for the past retained by their parents (Lloyds and RSB respectively) many of the executives who made the decisions to sell PPI, set the aggressive targets and the staff who delivered them are working for these ‘challenger’ banks.
They are also not weighed down by legacy systems unlike the Big Five banks, those spawned from the Big Five (TSB and Williams & Glyn) and those challenger banks who have been created by the acquisition of former building societies such as One Savings Bank (Kent Reliance Building Society) and Virgin Money (Northern Rock). While it may have taken Tesco Bank longer to get to market with their current account it is being delivered on (at least relatively) modern systems.
What the launch of Tesco Bank’s current account means is that there are now two sizeable challenger banks that are not tainted with the legacy of the financial crisis and that are serving their customers using modern technology platforms designed to work in the digital mobile world – Nationwide and Tesco.
Does this mean that the Big Five banks are quaking in their boots worried about their future? Clearly any bank executive should be aware of and taking into account what the competition is doing. The reality though is that for most customers banking is not that interesting, it is a commodity not worth spending a lot of time thinking about and that despite Seven Day Switching making it easier, they have better things to do with their time than switch bank accounts. This means that there will not be a flood of customers leaving the Big Five banks to sign up with Tesco or Nationwide.
The launch of the Tesco Bank current account is to be welcomed as a new force in the retail banking market, but no one should think that this is going to bring about a seismic change to who customers bank with.