Tesco could squeeze small banks

Tesco could dominate the financial services sector and potentially push out smaller banks and societies, says Datamonitor.

Robert Mattai, retail banking analyst at Datamonitor, says the supermarket giant is progressing towards offering current accounts and mortgages, and that with its vast customer base, extensive store network and solid brand reputation, it will have a competitive advantage over rivals.

Tesco signalled its intentions to make further inroads into the retail banking market in July 2008, when it bought the Royal Bank of Scotland’s 50% share in Tesco Personal Finance for 950m.

Since then, Tesco has reshaped its personal finance division by appointing Benny Higgins, former head of retail banking at HBOS and RBS, as chief executive.

In an interview with The Scotsman last year, Higgins said that branching out into current accounts and mortgages was “a matter of when, not if”.

But Mattai says: “Just as the supermarket chain has forced many local retailers out of business, it will be no surprise if Tesco’s move into banking captures the market share of a lot of the smaller building societies that rely on local business.”

A spokeswoman for Tesco Personal Finance says that although it is looking at growing its financial services proposition it has not committed to anything.

She adds: “We announced our growth plans back in July 2008 and although we are looking to expand our mortgage and current accounts business we have not committed to anything at present.”