The major supermarkets have made significant inroads into the financial services sector since they first entered the market, and there remains considerable scope for growth. In 2003 IBM estimated that about 5.8 million people had bought a financial services product from a supermarket, predicting that by 2008 this would rise to 14.4 million.
There are three core factors that underpin supermarkets’ proposition in financial services, which will fuel further growth. First, their strong and trusted brands – which in many cases are stronger than those of traditional financial services companies – are a valuable asset, particularly in an industry where customers need to feel they can trust their provider.
Second, the operational costs of supermarket banks are much lower than those of an average financial services company, enabling retailers to develop low-priced products while still giving customers the benefits and features they want. The nature of retail means there is a strong focus on customer service that has been generally lacking in the traditional banking sector. Finally, millions of people visit a supermarket each week, providing the banking arms with several opportunities to engage with them, from in-store banking areas to product leaflets at checkouts. This gives the supermarket banks a significant advantage over traditional providers, which have had to build up their own infrastructure and attract customers into their branches.
The strength of the supermarket brands and their business models gives them a value proposition that cannot be matched by traditional banks and insurance companies. Being able to fuse a trusted brand heritage and the customer access of their supermarket with the product and service excellence of their banking parent also means that supermarket banks can benefit from the best of both worlds, giving supermarkets a definite competitive edge.
But if supermarket banks are to achieve their full potential, expanding the product range and offering competitive prices is not enough. Supermarkets must also find ways to differentiate their proposition in this increasingly crowded market.
An obvious area is savings – supermarkets could have a major role to play in helping to bridge the UK’s “savings gap”. One of the best ways to persuade people to save is to provide convenient ways for them to do so – and this is where the supermarkets come into their own.
Both Tesco and Sainsbury’s offer in-store facilities for their bank customers to put money into savings accounts. For instance, Sainsbury’s SaveBack initiative allows people to put money into a savings account with a simple swipe of a debit card while at the checkout.
Research by TNS shows that if this service were available in all supermarkets, UK consumers would potentially save an extra &£495m a month or &£5.94bn a year. According to the research, of those people who said that they would use this service, one in two said because they visit their supermarket regularly, they would be more prone to save more. About 29 per cent said that they would save more because of the trust they have in their supermarket. The supermarkets could also help fill the void left by the closure of about 4,000 local bank branches over the past ten years, leaving about 1,000 inner city and rural communities without a local branch.
Supermarket banks have already accomplished a great deal. Much of the foundations are now in place, and they need to capitalise on this if they are to become even bigger players in the retail financial services sector. This can only be achieved if supermarket banks stay focused on their strategy of mirroring the parent brands’ reputations for offering quality products and services at competitive prices. v