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Will ambitious Tesco Bank ride to the Government’s rescue by boosting lending?

Today grumpy coalition business secretary Vince Cable will tell the Liberal Democrat party conference that businessmen are bastards and bankers are the biggest bastards of the lot.

They pay themselves too much and don’t lend enough, particularly to small businesses.

The bankers, even those at Lloyds Banking Group and RBS, in which the government holds large stakes following the banking rescue of 2009, will sigh wearily and point out, yet again, that they’ve been pilloried for lending to people and companies who can’t pay the money back and are required to rebuild their profits and capital balances to try to avoid further crises in the banking sector. And, anyway, they’re lending nearly as much as they promised to.

It’s not their fault if lots of customers have decided to reduce their debts and pay back their loans (a good thing surely).

What’s needed of course is competition. At the moment the big five banks in the UK (HSBC, Lloyds, Barclays, RBS and the recently-enlarged Santander) have the market more or less to themselves. Building societies, even the mighty Nationwide which is as big as the rest combined, aren’t lending much because they too are rebuilding their capital and, unlike the banks, don’t have shareholders to tap for extra cash.

Of the second tier banks, mostly former building societies, all of them have been absorbed by their bigger brethren with the exception of Northern Rock which is taking its first cautious steps outside the intensive care ward.

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But if someone starts to take market share away from the big five then they will start to compete with more loans at, crucially, lower rates.

And that someone is likely to be Tesco.

Tesco has had a banking operation for years, making a few hundred million from credit cards and insurance. Last year it said it was going to offer more savings products plus mortgages although this has been slow to happen.

It currently has just six million bank accounts with £4.5bn of assets, Lloyds has £1,000bn of ‘assets’ although these include, among other things, loans, many of which might not be deemed to be readily-saleable assets.

But today, in the Financial Times which is running ‘Tesco week’, Andrew Higginson, the boss of Tesco’s services division which includes banking along with telecoms and web businesses, says that the business is going to expand dramatically, playing the major role in boosting services’ profits in the UK to about £1bn by 2014, 27 per cent of the UK total.

It might not just be a UK business either. Two thirds of Tesco group sales (although less profit) come from outside the UK and newly-annointed CEO Philip Clarke says he plans to roll out internet shopping across the global empire. So why not banking?

Winning market share in the UK banking market is hard work, customers routinely moan about the service they get from their banks but are highly resistant to moving their accounts. They think it’s too much hassle and the next lot will be just as bad.

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But if anyone can persuade them to do it it will be Tesco.

There are some other would-be players in the retail banking market including Metro Bank, which wants to buy the bank branches Lloyds is being forced to sell by the European Commission and Sir Richard Branson’s Virgin, which has been waiting in the wings for what seems like for ever (probably for someone else to put up the money).

But Tesco, and maybe other powerful retailers like Sainsbury’s and Marks & Spencer, are the best bet for extra competition in the sector, exactly what Vince Cable and his boss, chancellor George Osborne, say they need.

Rather than moaning at the bankers already in business, Cable and Osborne would be better employed encouraging Teco and its peers to expand their banking offerings and quick.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.
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