Tesco BANK

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How will Tesco Bank shape up?
Alan O'Sullivan, This is Money
6 October 2009
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The newly renamed Tesco Bank has a long way to go before it replaces some of the nation's biggest banks, but it has the potential to become one of the most successful banking brands in the country.

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In a symbolic move that outlines its ambition, the supermarket announced today that it was renaming Tesco Personal Finance as Tesco Bank.

It revealed that it has attracted 300,000 customers to its banking arm over the past year, giving a total of 6m.

But as the banking industry may have to start charging for current accounts in the near future due to the current legal battle over bank charges, it may be able to grow this customer base much faster than its rivals by offering free accounts if customers spend a certain amount in its stores.

So how does Tesco Bank shape up and will it become a major force?

Savings rates

The bank has a good reputation for customer service and its savings products regularly appear at the best top of the best-buy tables. These accounts are often not as consistent as those offered by building societies, but are on par with those offered by the big banks.

For example, Tesco Bank's internet account is one of the highest paying on the market at present at 3%, although this includes a 1.75% bonus, meaning the rate will fall to 1.25% after 12 months.

The account saw a rush of customers at the start of the year, although This is Money readers complained about an overly complex and convoluted internet banking process.

Customer base

In terms of customers, Tesco still has a long way to go before it begins to rival the big High Street banking names: Lloyds Banking Group has a monumental number of customers at 30m, followed by RBS's 28m, Santander's 25m, Barclays 22m and HSBC's 16.1m.

As stated previously Tesco Bank attracted 300,000 new customers this year to reach a total of 6m. That means Tesco Bank grew its customer base by just over 5% in the last year, which means it is keeping up with some of its rivals, but not vastly out-performing them yet.

In comparison, Lloyds Banking Group recently announced it opened 1m new current accounts and 2.3m savings accounts in the first six months of this year, out of a total of 22m current accounts and 21m savings accounts, growth rates of 4.5% and 11% respectively.

Brand presence

Tesco Bank's brand is its strong point. It is as big a presence across the country as any of the major High Street banking names. It has a 2,300 strong supermarket network to fall back on with 3,000 cash machines, which rivals Barclay's 1,720 branches and 3,414 cash machines.

If Tesco was to buy up the branch network and business of Northern Rock, as has been rumoured in the media, this would considerably add to its presence. In terms of credit cards, it is already a major brand as the seventh largest credit card issuer in the country.

Despite its critics when it comes to its supermarkets and the state of the High Street, Tesco has an ace up its sleeve when it comes to banking. The supermarket has a reputation for reliability untainted by the financial crisis, which has hammered banks' respectability in the eyes of the public.
http://www.thisismoney.co.uk/savings-and-banking/article.html?in_article_id=491541&in_page_id=7&position=moretopstories