Tesco current account challenges high street banks

Supermarket behemoth Tesco will take on high street banks in the New Year, launching its own range of current accounts.

News of the launch, which will create around 300 new jobs, has been welcomed as a challenge to a market dominated by the Big Four UK banks (Barclays, HSBC, Lloyds Banking Group and The Royal Bank of Scotland Group).

Good timing

Tesco Bank, the supermarket’s financial services arm, has been around since 1997 and already offers a range of credit cards, personal loans, savings accounts, mortgages and insurance products. It had planned a current accounts launch to coincide with the introduction of guaranteed 7-day account switching in September, but will instead launch in 2014, creating new jobs in Glasgow and Edinburgh.

Tesco’s current account launch is poised to capitalise on what’s been a damaging year for high street banks. Just this month, NatWest suffered its third major IT failure in 12 months, while Lloyds Bank has this week been fined £28million for “serious failings” in relation to sales staff bonus schemes.

The details of the supermarket’s current account range are under wraps for now, but Benny Higgins, chief executive of Tesco Bank, said: “The design of the product features and services of our current account has been anchored in the views expressed by Tesco customers around simplicity, transparency, convenience and the need for loyalty to be rewarded.”

Commenting on the Tesco announcement, Kevin Mountford, head of banking at MoneySuperMarket, said: “Tesco Bank’s launch into the current account market in 2014 is excellent news for consumers, as it is the first real mass market challenger to the traditional high street banks. Tesco is a household name with the scale and brand loyalty to enable it to target millions of customers. More specifically, Tesco Bank has already attracted 6.8 million customers by offering a range of competitive financial services products from savings accounts to mortgages.

“While we don’t know the specific product details yet, Tesco Bank’s launch will undoubtedly help create more competition in the industry. We have already seen new challengers enter the market recently, with the likes of the Post Office launching a current account earlier this year, and so now consumers will have even more choice. In addition, with the Current Account Switching Service now in full swing, consumers will find it easier than ever to switch to a better deal. However, the devil will be in the detail, but I would hope that Tesco will challenge the main providers by taking an innovative approach to current accounts, and no doubt loyalty will play a big part of the offer, probably linked to its own Clubcard scheme in some way.”

‘Powerful weapon’

George Osborne, Chancellor of the Exchequer, says Tesco’s entry into the market will be good for competition: “I am delighted Tesco Bank has confirmed its plans to enter the current account market. This is a boost for Glasgow and Edinburgh and another step towards a more diverse UK banking sector. I want consumers to have as much choice as possible and the only way to do this is to encourage new, challenger banks to enter the market.

“I am determined to create a banking sector that serves the needs of customers rather than the other way round. That is why the government has armed consumers with 7-day account switching, a powerful weapon for them to demand better services from their bank.”

Guaranteed switching

The 7-Day Switch rules, which were introduced by the Payments Council on September 16, mean you can now move to a new current account provider within seven working days. Better still, the switch is underwritten by an official guarantee, which means you can’t be left out of pocket if, for example, you were to miss a payment in process of moving.

Around 89,000 current account switches were carried out in the first month of the new rules coming into effect, according to the Payments Council. This works out as 11% higher than the same period in 2012.

Adrian Kamellard, CEO of the Payments Council said: “We never expected that every customer who is tempted to switch would rush out to do so at launch, but this is an encouraging start.”

And if the new, faster switching process isn’t enough to convince you to jump ship to a new current account provider, there’s also the fact that many current accounts now outperform certain types of savings accounts. For example, Clydesdale Bank’s Current Account Direct pays an annual equivalent rate (AER) of 4.00% fixed until March 31, 2015 on balances up to £3,000. Read Rachel Wait’s review for more information.

You can also find out more about seven-day current account switching and get started moving your own account at our dedicated 7-Day Switch hub here.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct

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