Tesco planning a push in the financial market
July 29, 2008
Tesco are hoping to make an aggressive push into the financial services market. They are planning to buy the 50% stake that Royal Bank of Scotland owns in Tesco’s joint personal finance business. Tesco want to buy the stake for £950m.
The supermarket giant is planning to grow their share in products such as home insurance. They are also hoping that in the future they will consider launching basic bank accounts to compete with High Street banks.
Tesco are going to promote products such as loans, savings, accounts and insurance in stores as well as selling more business online.
Tesco have not said when they would possibly launch a basic bank account but said they believe they are “well placed” to offer such a service but they have all but ruled out offering corporate banking and mortgages.
The move would put Tesco’s in direct competition with leading High Street banks.
Tesco chief executive Sir Terry Leahy said “Services are bigger and faster-growing markets than food. As consumers look to make every pound work harder, it is a good time for Tesco to expand its presence. With a renewed focus on growth in the UK and internationally we can unlock the true potential of Tesco’s retailing services.”
Tesco launched its personal finance business eleven years ago and has been successful. Last year it made £206 million profit last year. Progress has slowed in recent times and Tesco’s market share in products such as savings and home insurance are small.
Once Tesco have purchased the RBS stake, they plan to overhaul the running of the business, which is based in Edinburgh to drive its expansion.
The business will be completely owned by Tesco but will be run at arms length and have separate management structure to comply with regulatory requirements.
Tesco have employed two former RBS executives to manage the business who will report back to Tesco’s current finance director Andrew Higginson who will become the new chief executive of retailing services.
Tesco aim to double the amount of profit generated by financial services, telecoms and other non-store sales to £1bn over the next few years.
Under the new agreement Royal Bank of Scotland will continue to provide services such as card issuing, call centres and back office functions. The RBS chief Sir Fred Goodwin said the business was “strong and successful”.
He added “At this stage of maturity it is appropriate for Tesco Personal Finance to move to single ownership for the next stage of growth.”
See www.tesco.com for more information on Tesco’s services.
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