M&S, Tesco and Virgin to challenge the banking giants
Marks & Spencer
Marks & Spencer has opened its first in-store bank at its Marble Arch store in July 2012, but now has branches in nearly 30 stores across the country. The retailer already has an online financial arm, M&S Money, and has been offering financial products since 1985.
However, the new bank has branches and a larger range of products, including current accounts, credit cards, insurance, savings, loans and investment.
M&S plans to expand to around 50 branches by 2014, and the bank is backed by HSBC, M&S Money's parent company. But it will retain its separate Financial Services Compensation Scheme (FSCS) licence, which entitles savers in M&S to a separate limit of £85,000.
Meanwhile Metro Bank, which first opened in London in 2010, used a £126 million boost from investors to expand across the south-east of England, with branches in Hemel Hempstead, Romford, Sutton and Reading, amongst others.
It aims to open 200 branches by 2020. However, since its inception, the first new bank on the high street in 100 years has only attracted 136,000 customers.
Aldermore and Virgin Money
Aldermore and Virgin Money are also new additions. The former, launched in the middle of the credit crunch in 2009, was born out of Ruffler Bank when it was privately sold.
Now re-branded as a retail bank, it offers mortgages plus a competitive range of savings accounts. Virgin Money, which bought Northern Rock at the end of last year, taking over 75 of its branches, is another new face on the high street.
The shake-up has been welcomed by consumers. Research from comparison site uSwitch.com shows that 36% of Britons believe more high-street banks are needed because existing ones have let customers down. That said, the ‘big four’ – Barclays, HSBC, BS Group and Lloyds Banking Group - haven't seen big drops in the number of accounts they run.
Barclays had 11.7 million current accounts at the end of 2012, down from 11.9 million in 2011, while HSBC still has around nine million current account customers.
The Independent Commission on Banking also found that the big four control 77% of all current accounts in the UK.
Meanwhile, increased competition is coming from supermarkets.
Tesco and Sainsbury's are eyeing up current accounts to add to their existing offering of savings accounts and credit cards. Tesco Bank is also looking at adding mortgages and widening its range of insurance products this year. It already runs two in-store pilot branches, which could be rolled out across the country.
"While Metro Bank can be seen as the trailblazer of the new banking revolution, the movement has picked up steam with Tesco on the verge of setting up branches too. The high-street banks will need to buck up their ideas and think outside of the box to compete," says Michael Ossei, personal finance expert at uSwitch.com.
Social lending, which cuts out the banks and matches up lenders and borrowers directly, is heading for a new milestone of £500 million in 2013, with lenders Zopa, Funding Circle and RateSetter reporting increased inflows.
Savers can benefit from interest rates as high as 9%, although the sector is not covered by the FSCS. But some experts think it won't take long for the big four to catch up with developments
Robin Klein, venture partner at venture capital firm Index Ventures, concludes: "Traditional high-street banks must keep innovating to survive."
This article was written for our sister publication Money Observer.
The name given to a certain type of financial transaction which takes place directly between individuals or “peers” without the use of a traditional financial institution such as a bank. Various social lending websites incorporate a number of strong risk controls, and screen all potential borrowers by checking their credit history. Lenders agree to lend a specific amount for a stated return and lenders’ cash is pooled between borrowers, spreading the risk. The major social lending companies are Zopa, RateSetter, Funding Circle, Quakle and Yes-Secure.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.