Here is an excerpt from a post called 'A retailer you can bank on?'
In taking its eyes of its core business, the banking industry accidentally opened the door to a new type of retail bank experience. Today it is the heavyweights of the retail sector who are providing millions of retail customers with full service, “face to face” retail banking.
The idea of bankers and retailers coming together to offer customers financial services is not a new concept. Assisting customers with their personal credit has been an integral part of modern retailing since the second world war. What is new is the idea of retailers becoming banks.
The old model was loosely based on a partnership or joint venture model. The retailers provided the outlets and the customers and the financial services industry provided the products and expertise.
In 2007 Wal-Mart put America’s Retail Banks on notice by making an application for a Banking Licence. In response, an industry that had grown complacent on a high fee:low service model, objected strongly to the prospect of an innovate new entrant introducing a new service rigour and pricing accountability to their lucrative market.
Wal-Mart later withdrew the application but as the New York Times reported at the time it already had the strategies and partnerships in place to provide its customers the financial products they were seeking without holding a banking licence. Two years later and those same Banks are facing a crisis of confidence of their own making. The Global Financial Meltdown has left a lot of the Retail Banks across the US and the UK seriously exposed.
Today commentators are actively questioning if providing Wal-Mart with a banking licence would help to improve the overall performance of the Financial Services Industry in the USA. Meanwhile, in the UK, Tesco is out to prove that banking and mobile phones are the perfect value add for retail services. It has bought out Royal Bank of Scotland’s share of their Tesco Personal Finance joint venture and has applied for a full banking licence.
“There is a real gap in the market for a bank which looks after customers in a simple, straightforward way and rewards their loyalty” Benny Higgins – Tesco Bank
Take the time to evaluate the presentations available from Tesco’s Investment Center and you’ll see that Banking now delivers 7.5% of Tesco’s group profits. Here's the rationale behind why they did this....
Why Tesco Bank operations will work for our Customers
• Our people put the customer first
• Our processes are designed with our customer in mind
• Our locations are optimal for skills and cost effectiveness
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Our systems are robust, scalable and cost-effective to run
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Our branches are convenient for customers – the stores network
• Our systems are less complex, making them easier, faster and cheaper to change
Tesco Bank has 6 million customer accounts. About 40% of these accounts are credit card holders which equals just under 8% share of the total UK credit card market. Ironically 65% of Tesco Banking is done online.
Only 10% of Tesco ClubCard members are also credit card holders and so you can see where Tesco believes it needs to focus to achieve its growth targets.
Package Tesco’s Banking, Mobile, Insurance and Online offering together and you’ll discover that these fledgling services now account for 15% of Tesco’s Group profits. What's more, new market entrants, like Tesco and Wal-Mart, and new mobile payment providers, like Nokia Money and PayPal, are seeking to revolutionise the Retail Financial Services marketplace.
Any bright sparks in India who would want to take this route after being inspired by Tesco?