Tesco announces plans to enter retail banking

by Gill Montia

Story link: Tesco announces plans to enter retail banking

Tesco has announced plans to enter the UK’s retail banking sector.

The supermarket giant has become sole owner of Tesco Personal Finance (TPF) after buying out 50/50 joint venture partner, Royal Bank of Scotland (RBS), for £950 million.

TPF currently offers its customers insurance, credit card, personal loan and savings products and RBS will continue to provide the products sold.

The business has over five million customers across the UK, Ireland, Hungary and Poland.

Tesco’s chief executive, Sir Terry Leahy, is convinced that services can potentially provide a larger and faster growing market than food.

In the case of TPF, he is predicting that it could boost the group’s profits by £1 billion a year at some point in the future. (Pre-tax profit for 2008 has been estimated at £240 million.)

Benny Higgins, formerly of HBOS and RBS, will head the business and Iain Clink is joining as finance director, having formerly worked for RBS as head of cards and direct finance.

Around 200 RBS staff will transfer to Tesco once the acquisition is completed.

Following the takeover, TPF plans to increase its in-store presence and develop a wider range of savings products.

The news that Britain’s biggest retailer could eventually compete with High Street banks has a ring of inevitability about it and will be seen as a challenge by the UK’s retail banking sector, already wearied by the credit crisis and the threat of having to pay back billions of pounds in unfair bank charges.