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The end of supermarket banking?

By Charlotte Coulson
13 February 2024
Financial & Professional Services
Banking & Payments

The banking sector was once the focal point for disruption, with new players seemingly entering the sector every other month. But the playing field appears to be levelling, with the much-anticipated news last week that Barclays has agreed to buy the majority of Tesco’s banking arm.

The bank has agreed to take on Tesco Bank’s credit cards and unsecured personal loans, amounting to around £8.3bn of unsecured lending balances, while Tesco will instead focus on insurance, ATM and travel money that sits alongside its core retail business.

This move appears to be further evidence of UK supermarkets exiting from financial services, with Sainsbury’s announcing a “phased withdrawal” from its banking business and ongoing talks between Co-op Bank and Coventry Building Society, which could lead to a merger later this year.

The rapid increase in competitors in the market, with the likes of Monzo, Starling, Metro and others all taking up market share, have made it harder for supermarkets to compete. When combined with higher interest rates putting pressure on funding costs it was perhaps inevitable and analysts have called this not only the end of supermarket involvement in UK banking, but that further consolidation is likely across the mid-sized sector.

Supermarkets have over the past two decades tried to leverage customer’s brand loyalty to pivot into new areas. From mobile phones to broadband, to energy, it seemed every little helped. But brand loyalty is not always enough to guarantee a successful transition into other business areas and the need for an offer that customers can truly taste the difference is key.

Those that remain will need to ensure that they continuously develop the customer experience and innovate, so that customers aren’t left with fewer options left on the shelf. It will also be interesting to see whether this is an indication of a wider move from supermarkets to withdraw further and stay in their aisle.