Five things you need to know about Tesco Bank's first current account

After years of waiting, the supermarket has launched an account aimed at loyal customers on steady incomes. It won't rescue results anytime soon though.

by Rachel Savage
Last Updated: 10 Jun 2014

1. It’s been a long time coming

Tesco set up its financial services division (mortgages, insurance, savings accounts, etc) back in 1997 with RBS, and then went it alone in 2008 (good thing really, given Lehman Brothers went off a cliff in September that year). Current accounts were then meant to be launched in 2010, but we’ve been holding our breath for a while now as Tesco battled to build its own IT system and changed its focus to online banking.

It also struggled with shifting regulations. They kinda tend to change a lot, so the bank had better get its house in order.

2. It’s for people with solid, steady incomes…

Open a current account with the supermarket and it’s completely free – unless you pay in less than £750 a month, in which case there’s a £5 monthly charge (unless you’re a Tesco worker). Meanwhile, those with an agreed overdraft pay 18.9% interest and people who slip into the red get whacked with a £5 charge per transaction, unless they get back into the black by 5pm that day.

The message is clear: Tesco Bank wants customers with nice, steady incomes, not part-timers or casual bar workers.

3. …who are Tesco loyalists

Clubcard members with a current account get an extra point for every £4 they spend in store and £8 they spend elsewhere (it’s usually a point, worth around 1p, for every £1 spent). No wonder – Clarke couldn’t get enough of banging on about ‘loyalty’ when trying to make people forget first quarter like-for-like sales were down 3.3%.

No doubt it’s a nice carrot to dangle in front of people who are already customers, but personal finance experts have pointed out cashback rewards are more plentiful elsewhere.

4. Tesco is going after the ‘big four’ banks

Tesco Bank chief exec Benny Higgins has made no secret of the fact he’d like to rival HSBC, RBS, Lloyds and Barclays. Other ‘challenger banks’, including about-to-float TSB, Metro Bank and Shawbrook also have big dreams. However, with the still-mighty might of Britain’s largest supermarket behind it, that’s not necessarily a complete pie in the sky.

For example, Tesco Bank has increased its market share of credit card transactions from 8% to 12% since going it alone without RBS. Higgins has claimed if Tesco gets the same proportion of their 17 million clubcard members who have credit cards opening current accounts it would be the same size as HSBC.

5. It could eventually prop up the ailing supermarket

It’s not exaclty news that Tesco as a whole is struggling – even former chief exec Sir Terry Leahy said yesterday that, as a shareholder, he was ‘disappointed’ with recent results. Tesco Bank’s profits are currently a drop in the ocean, at £194m for the 2013/14 financial year compared to the groups £2.3bn pre-tax profit. However, with Higgins predicting that figure will grow 20% this year, the child may eventually pay its parent’s pension.

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