Showing posts with label Sainsbury's Bank. Show all posts
Showing posts with label Sainsbury's Bank. Show all posts

Wednesday, 29 January 2014

Back to the future - a return to supermarket banking or the end of banking for all?

The report on the BBC News website that Barclays is looking at potentially closing 400, or a quarter, of its UK branches which was subsequentally retracted and replaced with a statement that Barclays is 'considering closing branches to reflect the that more customers are now accessing financial services online and via mobile devices',  reflects the sensitivity the big 5 banks have to announcing branch closures and comes on the back of a statement in November 2013 that in August 2014 it is to open four branches within Asda (the UK arm of the US supermarket behemoth Walmart), closing the standalone branches in the same towns. The model of putting bank branches into supermarkets brings back memories of the wave of supermarket banking experiments that took hold in the UK at the end of the last century with the launch of Sainsbury’s Bank (backed by Bank of Scotland), Tesco Personal Financial Services (backed by Royal Bank of Scotland) and Safeway Banking (backed by Abbey National). At that time the supermarkets were seen as a serious challenger to the established banks (despite being backed by them) and the world of banking was going to fundamentally change. It was also the time of the tie-up of Abbey National with Costa Coffee to create new and destination branches – very much building on the revolutionary Occasio branches that WaMu (Washington Mutual) launched in the US.
 
So what happened to all these new visions of banking? Abbey National was taken over by Santander who quickly took the axe to the partnership with Costa, Safeway was acquired byMorrisons who closed down the financial services arm and the remains of Washington Mutual following the financial crash of 2008 were acquired by JP Morgan Chase who effectively bulldozed the Occasio branches returning to a far more business like branch format.
 
Tesco Bank (as it became) with its 6.5m customers continues to make significant investments into becoming a full service retail bank. Sainsbury’s Bank bought out the Lloyds Banking Group share (that Lloyds inherited when it took on HBoSfollowing the financial crisis) in May 2013, however it made it clear that it has no intention of becoming a full service bank and is not planning to offer mortgages or current accounts.Sainsbury’s appear to have no intention of turning its supermarkets into bank branches.
 
In the meantime Marks & Spencer launched in late 2012 M&S Bank operated by HSBC offering a fee-paying current account. With Marks & Spencer continuing to struggle with their fashion lines the retailer is increasingly being measured principally as a supermarket. The jury is still out on how successful M&S Bank but there are no indications that it has been a runaway success.
So why is Barclays trying to re-visit the supermarket banking model? The reality is that it has very little to do with wanting to be in supermarket banking and much more to do with finding a way to reduce their costs by closing their branches. Barclays will benefit from the ability to sell or end the lease on the branches and will have significantly lower costs fromhaving an in store branch than a standalone one. It is also true that this move should make it easier for customers to visit their branches. As high streets increasingly become parking unfriendly through the use of parking restrictions combined with prohibitive parking costs where parking exists bank branches are becoming harder to just pop into or even to access (Metro Bank with their drive through branch opened in the mecca that is Slough would beg to differ). Typically supermarkets have large amounts of parking which will make it easier for customers to visit their banks if they are within a supermarket. It is not only the difficulty of parking that is reducing the number of visits by retail customers to banks. The increasing comfort and acceptance by consumers of all ages of carrying out activities online and the increased penetration of smart phones and tablets means that there are increasingly few reasons for customers to visit branches – cash withdrawals, making payments, getting foreign currency, paying in money into accounts no longer require a physical visit to a manned branch. Increasingly it is only at those key life moments such as buying a house, getting married, getting a loan, opening a bank account that a visit to a bank branch is necessary and some of that is driven not by the desire to talk to someone or to get advice but by the continued legal requirement to provide a physical signature on documents.
 
For those important financial transactions such as arranging a mortgage or a loan it is highly questionable how conducive a branch within a supermarket will be to have a meaningful discussionExchanging confidential information over the sound of the tills ringing and the promotional announcements over the loudspeakers is not what customers are looking for. Neither is taking out a mortgage or a loan one of those spontaneous purchases that supermarkets rely on to increase basket size. As a mother pushes her trolley around with her two screaming toddlers in tow she is unlikely to suddenly decide that she would like to talk to her banker about a loan.
 
However Barclays might have liked to position the opening of branches within ASDA supermarkets as for the convenience of their customers, with the review of their branch network (and the denied closing of 400 branches) with no confirmation that all closed branches will re-open in Asda stores, Barclays are making a statement of intent about the role of branches going forward.



Had the report of the potential for 400 branches being closed stood, Barclays would have been credited with the courage to be the first of major high street banks to make its intentions clear. This would have made it easier for the remainder of the big five banks to annouce their own closure plans. The other banks have hinted at their desire to close branches but none have been bold enough to say how many. They will eventually have to do this because it is an undisputable fact that less and less customers visit their branches. Many of those that visit their branches only do so because there are not currently convenient alternative ways to carry out transactions such as paying in cheques. However with the increasing penetration of smartphones with cameras built in even paying in cheques may soon no longer require a visit to a branch.



The future of branch  base banking is at a cross roads where the big five banks must decide whether they wish to continue to support customers who want to use branches or whether they should encourage those customers to move to banks that see branch banking as fundamental to what they do such as Metro Bank, Handelsbanken, Umpqua Bank (in the US) and Bendigo Bank (in Australia). It maybe that the end of the universal bank serving all segments of customers is in sight.

Friday, 7 June 2013

Will challenger banks make a real impact on UK lending?

Antony Jenkins, the CEO of Barclays, told investors that the challenger banks will fail to make a real impact on the lending market in the UK in the coming years.

His argument was that those who look to acquire the branches available by the forced sale of Lloyds Banking Group and Royal Bank of Scotland branches when customers are using branches less and less in favour of online banking are buying a wasting asset.

Simplistically this is right, however even in markets where customers are carrying out a greater proportion of their banking business online such as The Netherlands, where 50% of branches have been closed, when a customer has a complex financial problem that needs fixing those customers are still showing a strong preference to address these face to face in a branch.

Even in a digital world the branch is still an important part of the marketing and branding for all the world's major banks. Branches are perceived as a reassuring sign of the stability of the bank, that by having a physical presence the bank is not going to disappear overnight.

What Anthony Jenkins did not explore is how the role of the branch is and needs to evolve (something which Barclays as an organisation is very aware of). The challengers recognise that branches are generally under-utilised assets and are being far more creative about their role in the community whether it be for business meetings, book clubs, music soirees or simply somewhere to go for a coffee. Banks such as Oregon's Umpqua (www.umpquabank.com) and Virgin Money with their lounges (http://uk.virginmoney.com/virgin/about-lounges/) are taking forward the thinking on the future of the branch. Antony Jenkins is right that the big five banks are increasingly closing branches but the challengers with their far smaller branch footprint are opening new branches rather than closing them. Handlesbanken (www.handelsbanken.co.uk) have been quietly opening branches and have been having a not insignificant impact on the market particularly on business lending.

When Jenkins referred to the challengers he appeared to limit that to those who might acquire the Lloyds Banking Group and the Royal Bank of Scotland branches, but of course this is not where the only challenge to the lending market is going to come from. Tesco, M&S and Sainsbury's banks already have very large branch networks they just happen to be retail outlets. Betting against these three making a success of their banking business is the height of folly.

Where Jenkins is completely correct is that for a challenger to simply open branches, and specifically traditional branches, would not be a wise move given the evolution of the customer and the banking industry. However the main challengers are not doing that. They are looking at an omni-channel strategy where online, mobile, call centre and branches come together to provide a new and better customer experience. There is a recognition that even in the branch customers may want to access their mobile or online banking services, that digital opens up the range of services that a branch can perform.

Taken at face value Antony Jenkins' comments that challenger will have little real impact on the UK lending industry smacks of complacency which the challenger banks should be delighted to hear. However given Jenkins' experience and knowledge of retail banking the challengers should not underestimate the fight they have on their hands. This can only be good for customers.

Wednesday, 15 May 2013

Should Co-op exit banking?

As incoming CEO, Euan Sutherland, reviews his options for raising potentially in excess of £1bn extra capital, given the issues he faces, rather than considering selling off his funeral business (a recession proof, profitable business), a logical option would be to look at selling off Co-op Bank.

The problems that Co-op Bank has both with the quality of the debt and the IT sit squarely with the misguided acquistion of Britannia Building Society. It is Britannia's foray into commercial property that has resulted in the downgrading of the Co-op's debt. It is the poorly executed integration of Britannia into the Co-op bank that has cost more, taken longer and has not left the Co-op with a viable banking platform. Both of those facts not only de-railed the Verde deal but should have been enough of a warning to both the Treasury and the FSA (as the regulatory body at that time) not to proceed with the Co-op as the preferred buyer of Verde.

A question that Euan Sutherland needs to answer as part of his strategic review is does it make strategic sense for the Co-op to own a bank? If it does, what will it cost to take what he currently has and turn it into a significant competitor in the market?

Tesco has invested heavily and continues to in Tesco Bank. It is taking more time and costing a lot more than it  was orignally envisaged to re-launch it as a full service retail bank. However its starting position was and is very different from that of the Co-op. For a start Tesco is world class at customer analytics and applying that to its business. With the launch of the Tesco Clubcard and the acquisition of the customer analytics business Dunhumby, Tesco has a wealth of information and insight about its customers which it already leverages and with the launch of current accounts and mortgages will be able to leverage further for its bank. Secondly Philip Clarke, the CEO of Tesco, recognises that digital is the second curve (the first curve being the stores) that Tesco must invest in to win in the market. Having a large estate of stores is not enough anymore to win in Financial Services or Retail. Tesco is investing millions in digital for both marketing and selling. With Tesco Mobile as part of its offering it is also very well positioned to lead in mobile payments and banking.

Although Sainsbury's was the first amongst the UK supermarkets to launch a bank, it allowed Tesco to overtake it. With the announcement by Sainsbury's that they have bought out Lloyds Banking Group's share of Sainsbury's Bank and will be investing £260m over the next 42 months to put in place a new banking platform, the seriousness of Sainsbury's intent to become a significant competitor for financial services is clear. Like Tesco, Sainsbury's will leverage the synergies from their stores and the customer insight they get from the Nectar card. Like the Tesco Clubcard Nectar will be a critical part of it's differentiated offering. Sainsbury's too is investing in digital (though it lags Tesco) and recognise the need to deliver omni-channel propositions i.e. allowing customers to interact with the bank over multiple channels simultaneously. Sainsbury's will in many ways be playing catch up on Tesco, however in comparison to Co-op are still significantly ahead.

Co-op still needs to complete the integration of Britannia Building Society, would need to invest significantly in digital for both the retail and banking offerings to even compete. To  be in a position to leverage the synergies between the bank and the rest of the Co-op Group will require significant investment beyond that required to meet regulatory requirements.

When Euan Sutherland looks at all of this, the capital he will need to inject onto the bank's balance sheet, the  size of the investments he will need to make to even get close to Tesco and Sainsbury's in terms of financial services, the time it will take and the likely returns he will need to consider whether this really is the best place for both his customers and members to place his bet.

However who will be interested in buying and how much they will be willing to pay for Co-op Bank with it's junk status debt given that there are at least two other banks available on the market - the 316 RBSG branches and the 632 Lloyds Banking Group Verde branches? There is no doubt that Euan Sutherland has some tough decisions to make in his first few months.