Despite its public calm, NatWest is furious at the way it has been treated in its eight month dealings with Tesco. The venture is estimated to have cost the bank 20m, and reduced NatWest to being ‘just another bank’ again.

When George Mathewson, Royal Bank of Scotland chief executive, made his dashing exit from a London Tesco Metro last Thursday, he was clad in black leather and clutching a crash helmet.

His motorbike gear was intended to guarantee front-page coverage in the broadsheets for the new “joint” banking venture with Tesco.

But some saw RBS’s attempt to convey a hot and sexy image for the new venture as a Freudian slip. Not only would the bank be riding pillion to Tesco from now on, but it would need plenty of protective clothing for the treacherous ride ahead.

The metaphor was not lost on NatWest executives whose five-year deal to run Clubcard Plus, first revealed in Marketing Week (April 19 1996), was torn up last week after only eight months.

Though NatWest’s shock de-listing by Tesco was carefully managed by the company’s spin doctors, the banking giant has lost a great deal of credibility from the breakdown of the deal. “The banks are losing their shirts on these deals with the grocery boys,” says one observer, “NatWest needed the Tesco savings accounts to deliver 200 per account, per year, to break even – they were closer to 40 each.”

NatWest’s managing director of retail banking services, Tim Jones, was still claiming last week that the Tesco Clubcard Plus venture – estimated to have cost NatWest about 20m – had been “entirely complementary” to its plans.

But this version of events does not square with that of sources at NatWest who were involved with the deal when it was originally struck. One source says: “Clubcard Plus was not seen as complementary to the banks plans; the original intention was to form a joint venture company and launch a co-branded card.”

On and off-the-record briefings from Tesco and NatWest also spun the story that it was Tesco which informally approached NatWest Bank towards the end of last year to see if it was interested in “developing their relationship further”.

According to NatWest, Tesco “was told it did not fit into the bank’s strategic plans”.

Again this is not the whole truth. NatWest did want to get more closely involved with Tesco. The deal fell apart because NatWest wanted to be an equal partner, but felt it was a second-class citizen.

A spokesman for NatWest says the bank required a joint venture with someone who had the same vision. “In the long term, the deal with Tesco could have been damaging to our brand and our reputation with customers. We are trying to build a new retail bank, not just be a paper shifter for other parties.”

It is expected that NatWest will now wash its hands of anything other than co-branded ventures and concentrate on being “just a bank”.

The original deal effectively divorced NatWest from its own customer base. There was no sharing of data or linkage between the Tesco deal and other NatWest products.

Its collapse has been portrayed to the City as a difference of opinion, but in actual fact it was in a mess from its very hurried start. Tesco wanted to steal a march on its competitors to please the City. Its chairman, Lord MacLaurin, a non-executive director of NatWest until he resigned on Thursday, was instrumental in pushing the deal through at NatWest.

“Lord MacLaurin played a key role in encouraging the deal,” says a former insider at NatWest. “NatWest was steamrollered.”

Curiously, insiders now say the decision to go down the own-label route with Tesco was not approved by the NatWest board, but by NatWest UK chief executive Martin Gray and run by managing director card services Patrick Boylan. Group chief executive Derek Wanless and chairman Lord Alexander were apparently not made aware of the deal until it hit the press.

“You had a situation where the Tesco board was pushing to impress the City, and NatWest was making important strategic decisions about own-label banking without board approval. It was obvious who was in the driving seat,” says the source.

As a result NatWest, which has never championed own-label banking, was forced to do exactly that. In the original Marketing Week story senior NatWest executives gave the impression that the new scheme was a co-branding joint venture. But when the scheme was eventually launched it became apparent the deal was struck on Tesco’s terms, and there was hardly any branding for NatWest.

It was the co-branding deal that never was.

The death knell for the relationship was struck when a top-level re-structure at NatWest last September (MW September 13 1996) resulted in the people responsible for the scheme being ousted or sidelined. Tony Warren, who was known to have opposed the deal from the start, took over retail financial services after the departure of deputy chief executive Stuart Chandler.

Sainsbury’s announcement in October that it would launch a full own-label banking service with Bank of Scotland forced the issue for Tesco.

Pressure from the City meant that Tesco would need to respond with a wider range of financial services, and the supermarket drove hard to get NatWest to provide more own-label services.

“Tesco tried the classic, subtle negotiating tactic,” says a NatWest source, “give us this benefit tomorrow or we will de-list you.” With its less powerful allies in the bank and the City demanding a response to Sainsbury’s move, Tesco was forced to look elsewhere. By the end of last year the deal had collapsed and Tesco was talking to other banks.

Until last Thursday, NatWest was still operating under the illusion that, although the deal was over, it would continue to be the financial services partner on the Clubcard Plus scheme. Demands for compensation will now be audible around NatWest’s headquarters.

Meanwhile, NatWest has continued with its co-branding strategy in the credit cards market running a co-branding unit under Tony Surridge to develop joint ventures and launching a credit card with British Airways (MW August 9 1996). At the same time, it is understood to be planning the launch of a redemption loyalty scheme similar to Goldbrand’s Goldfish card.

It is increasingly unlikely that any of the remaining big high street banks will seek “joint” ventures with the supermarkets, other than on an ad hoc basis. Asda, the last financial-service-free major supermarket, has had talks with the Royal Bank of Scotland (MW January 10), and Midland Bank (MW June 28 1996); and it is believed to have spoken to NatWest at the start of this year.

It is understood Asda will not now enter the financial services sector. A price war seems in the offing and a profits warning is extremely likely.

Neither Tesco Bank nor Sainsbury’s Bank are serious threats to any of the high street players. They will not be able to get a significant number of profitable customers to switch. MacLaurin resigned from the NatWest board, not because Tesco’s store network would compete with NatWest branches, but because a deal, which he had helped to broker and strongly endorsed, had collapsed.

So far only two Scottish banks and a former building society have signed deals with grocers. The idea that the new deal gives RBS a footprint south of the border is probably nonsense. It is highly unlikely that its brand name will appear in Tesco stores. In Tesco’s world it will be just one more own-label supplier.

From RBS’ perspective the deal indicates how desperate the bank was to become an own-label provider. The new deal involves Tesco and RBS investing up to 20m each in the first year, with the aim of making profits of around 50m in three years time.

One City analyst remarked scathingly that the own-label deal with Tesco may be part of a poison pill strategy to prevent a potential bid for RBS: “If any potential bidder gets to see the terms of the deal with Tesco,” he says, “it is likely to turn and run.”

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