New Report: Banking At The Checkout

The report concludes that the UK retailers have made less of an impact than many (including, it should be admitted, the authors of the report) first anticipated. Sainsbury’s Bank recently reported an underlying operating loss of £10m for 2005/06 while the profits of Tesco Personal Finance (TPF) were flat in 2005/06.

Report co-author Professor Steve Worthington commented: “The supermarkets have been very selective in the services offered. They have focused on credit cards, savings and insurance, markets already shaken up by other such as Direct Line. No retailer has competed head on with the banks by offering a full suite of products based around current accounts.”

The report sets out a number of reasons why the major retailers have not made more of an impact on the banking market:

1. First, retailers’ banking operations are not immune from the reputations of their parents. Much of their initial appeal was due to the stronger customer reputations of the parent retailers compared with retail banks. However, since the late 1990s both Marks & Spencer and Sainsbury suffered declines in reputation and performance, with implications for their reputational advantage in financial services.
2. Second, perhaps the similarities between retailing and retail financial services been overstated and the differences understated. Retail financial services have proved hard to ‘retail’ in a store environment.
3. Third, competition from other innovative providers of financial services may have blunted the threat from retailers. In the UK credit card market for example, the established retail banks have faced intense competition from the monolines and internet banks such as Egg, as well as the retailers.

Ultimately, retailers have ended up in the curious position of partly competing and partly co-operating with the banks. With M&S’s sale of its financial services business to HSBC in November 2004, it joined the supermarkets in operating in partnership with an established bank. The M&S deal leaves three of the big five UK banks – HSBC, HBOS and RBS – with a stake in the future development of retailer banking.

“For the banks to work with the retailers in this way suggests that, from their perspective, they see the direct competitive threat to their own core retail businesses as limited,” commented report co-author Peter Welch.