Tesco Bank launches a current account – finally!

The news that Tesco Bank has finally launched its current/checking
account six years after its split from RBS was announce must come as a great relief to Benny Higgins, CEO, and the rest of the
team at Tesco Bank. Like expectant fathers they have been pacing the corridors
of the maternity ward far longer than they would have liked. The delays have
been numerous but principally down to getting over the regulatory hurdles and,
more recently, ensuring that the IT systems fully work the way that they are
meant to before being unleashed on real customers. Delaying the launch of the
current account until the systems were thoroughly tested, while it was
frustrating for those anxious to see Tesco Bank becoming a real challenger to
the sector, should be recognised as absolutely the right decision for the CEO to
take. The embarrassment and reputational damage caused to banks such as RBS and
National Australia from having serious outages in their core banking systems
far outweighs the benefits of launching earlier.

The announced current account is paying 3% on balances and
only charging a monthly account fee of £5 if less than £750 is paid into the
account. This is a competitive offer. There are added advantages for Tesco
customers who will also receive loyalty Clubcard Points on all spending using
the Tesco debit card.

Marks & Spencer beat Tesco out with a current account,
having both free and fee-charging versions of their accounts. As with Tesco
there will be benefits of being both a customer of M&S and its bank in
terms of rewards. There will be some overlap between customers but the big
difference is that Marks & Spencer Bank is owned by HSBC and therefore
cannot really be seen as a challenger bank.

The launch of the current account by Tesco Bank should
represent a real challenge to the big five banks (Barclays, Lloyds, HSBC, RBS
and Santander). As an aside, Santander likes to position itself as a challenger
but being owned by one of the largest banking groups in the world, coming from
the consolidation of building societies (Abbey National, Alliance & Leicester,
Bradford & Bingley being the main ones) and with a less than perfect
reputation for the service it provides it quite rightly deserves to be clumped
in with the other big 4 banks as being just another legacy bank.

There are many reasons why Tesco Bank should be seen as a
real challenge to the established players. For starters it is not a small bank –
it already has over 6 million customers using its insurance and lending
products. All of these customers are potential customers for their current
account offering. It also already has a large physical distribution network
through its supermarkets. As they are available to savers today customers will
be able to make deposits in 300 stores. However this account has been designed
to be opened online and customer support will be available on the phone. The
bank being designed for digital differentiates it from the likes of TSB, Metro
Bank, Virgin Money and Williams & Glyn, which have all come from a traditional
branch centric design.

Not only has Tesco Bank been designed from the start with
digital in mind, Tesco also has many years experience of running large scale
digital operations through its own website as well as operations like Tesco
Mobile. This gives it a much better chance of delivering a reliable good
customer experience than other challenger banks, particularly the small scale
contenders such as Metro Bank, Aldermore and Atom.

Tesco Bank also has the added advantage that through its
Clubcard programme it not only has vast amounts of data on both its existing
and potential customers but it also has years and years of experience of using
that data to drive business. Unlike the new start ups and the established banks
so-called ‘Big’ data is not a new topic for Tesco. This should give it
significant advantages given its customer insight in terms of providing
customised propositions to its customers.

Tesco Bank is also not weighed down by legacy. They don’t
have the reputational problems from the mis-selling of PPI and the high levels
of complaints which the Big Five banks have. They can position themselves as
truly a new entrant. While TSB and Williams & Glyn may have the liability
for the past retained by their parents (Lloyds and RSB respectively) many of
the executives who made the decisions to sell PPI, set the aggressive targets
and the staff who delivered them are working for these ‘challenger’ banks.

They are also not weighed down by legacy systems unlike the
Big Five banks, those spawned from the Big Five (TSB and Williams & Glyn)
and those challenger banks who have been created by the acquisition of former
building societies such as One Savings Bank (Kent Reliance Building Society)
and Virgin Money (Northern Rock). While it may have taken Tesco Bank longer to
get to market with their current account it is being delivered on (at least relatively)
modern systems.

What the launch of Tesco Bank’s current account means is
that there are now two sizeable challenger banks that are not tainted with the legacy
of the financial crisis and that are serving their customers using modern
technology platforms designed to work in the digital mobile world – Nationwide and
Tesco.

Does this mean that the Big Five banks are quaking in their
boots worried about their future? Clearly any bank executive should be aware of
and taking into account what the competition is doing. The reality though is
that for most customers banking is not that interesting, it is a commodity not
worth spending a lot of time thinking about and that despite Seven Day
Switching making it easier, they have better things to do with their time than
switch bank accounts. This means that there will not be a flood of customers
leaving the Big Five banks to sign up with Tesco or Nationwide.

The launch of the Tesco Bank current account is to be
welcomed as a new force in the retail banking market, but no one should think
that this is going to bring about a seismic change to who customers bank with.

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