RETAIL banking in Britain is taking on new connotations with the decision by supermarket combine Sainsbury's to launch its own bank in partnership with Bank of Scotland in the New Year.
With every likelihood that archrivals Tesco will follow suit quickly prompting other retailers to examine possible banking moves, there is every chance of in store banking becoming the norm. The potential threat to the viability of the branch networks of major banks is self evident and banks will be assessing the scope for holding on to market share through partnership ventures with the new retail bankers.
Next month's openings of Sainsbury's first two stores in Ballymena and Belfast will bring the retail banking revolution to Northern Ireland as well as in mainland Britain forcing Irish retailers and bankers to examine their future strategies. Sainsbury's say its Northern Ireland customers will be able to join its bank in, the New Year after signing up for its Reward Card providing discounts for regular shoppers.
Initially, the Sainsbury's bank will offer a savings account and two credit cards, Visa and Gold, before going on to provide current accounts, cheque books, overdrafts, personal loans, insurance and home loans. Key stores will have banking staff to recruit customers and provide information.
Most of the banking services will be offered over the telephone and, as such, will be a further addition to the crowded tele banking market. Inevitably, the move into banking has been seen as an aggressive bid by Sainsbury's to put new growth back into stores and win back market leadership from Tesco.
But the superstore groups along with many other retailers are already providing extensive quasi banking facilities through automated teller machines and cash backs. Provision of further financial services is a natural bolt on not requiring huge spending on systems and, if anything, it is strange that the two leading superstore groups have taken so long to get round to exploiting their extensive electronic systems.
Their entry into banking has been made possible by the arrival of the loyalty card providing discounts by way of "money off" vouchers for regular shoppers. Tesco launched its Clubcard early last year and says the card is now being used regularly by 6.5 million customers. In June, Tesco began the move into banking services by launching its "Clubcard Plus" to act as a charge card for payments from budget accounts. Interest of 5 per cent is paid on deposits in Clubcard Plus accounts and overdrafts are charged at 9 per cent.
Tesco declined to comment on the take up but said the card is on target to meet ambitious end of 1997 targets. Sainsbury's was flat footed by the Tesco loyalty card and took over a year before launching its own "Reward Card" in June. But recruitment has been at a phenomenal rate and Sainsbury's said it has issued "some seven million" cards. For both companies, the main attribute of the loyalty card is the huge data base of names and addresses of regular customers providing a veritable wealth of "warm leads" for sales of additional products.
There is nothing new in building a data base of customers' names and addresses to provide the platform for selling additional products. Marks & Spencer spotted the potential of a chargecard as long ago as 1985 and its new M&S Financial Services business became an authorised bank in 1987. It has taken Tesco and Sainsbury's nearly 10 years to take a leaf out of M&S's book.
The M&S chargecard has been extremely successful. There are almost four million card holders and the percentage of UK sales made through the card has risen to 25 per cent. With the names and addresses of cardholders, M&S has gone on to build a major financial services business contributing £50 million sterling to group profits in 1995-96. Over 600,000 customers have borrowed more than £1.5 billion in personal loans and around 100,000 have invested over £500 million in M&S unit trusts and Personal Equity Plans.
M&S entered the personal insurance market early last year. Sales of life assurance products were slow to begin with but interest is said to be more "encouraging". The M&S chargecard is widely used by customers of the group's stores in Northern Ireland. Although the card was launched for customers of its three stores in the Republic last year, M&S say there are no plans at present to introduce other financial services in the Irish market.
This may change after further store openings build its market share and increase the data base of names and addresses of customers in the Republic. If M&S, Sainsbury's and Tesco can see profit in financial services, other store groups with chargecards are likely to follow suit, linking up with banking partners as Sainsbury's is with Bank of Scotland. The retail banking revolution is plainly just beginning.
