Tesco share price: Banking arm launches its first current account

on Jun 10, 2014
Updated: Apr 9, 2020

iNVEZZ.com, Tuesday, June 10: Tesco’s (LON:TSCO) financial services arm, Tesco Bank, has launched its first personal current account, looking to challenge established lenders and bring shoppers back into its stores.

First heralded five years ago, the account will levy a monthly fee of £5 which is waived for customers who deposit more than £750 per month. Annual interest of three percent will be paid monthly on credit balances up to £3,000, and there are no monthly fees payable for using an arranged overdraft facility, only interest on borrowing. The account will be online only, although customers can make deposits at some Tesco stores, the banking division today revealed.

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Tesco Bank will target the six million existing customers who already use its savings, insurance and loan services, but also has its parent supermarket’s 16 million Clubcard holders in its sights. CEO Benny Higgins noted that it would bring a “fiercely competitive” customer focus from the retail sector which did not exist in banking.
“The bank is a cornerstone of Tesco’s relationship with its customers and [the new account] will make that relationship stronger,” Higgins told reporters.

Tesco Bank, originally a joint venture with Royal Bank of Scotland (LON:RBS), is one of several so-called ‘challenger banks’ beginning to offer current accounts, seen as a gateway to providing more profitable products such as savings accounts, mortgages and credit cards. Nationwide and TSB — which is being spun off from Lloyds (LON:LLOY) in a flotation (TSB IPO: Lloyds opts for cautious valuation) — are also making significant pushes into gaining a greater proportion of the UK’s 50 million current accounts market, currently dominated by the country’s ‘big four’ banks: HSBC (LON:HSBA), Barclays (LON:BARC), Lloyds and RBS.

Other British retailers have also ventured into financial services. Marks & Spencer (LON:MKS) for instance has a banking joint venture with HSBC, while Sainsbury’s (LON:SBRY) bought Lloyds out of a banking joint venture in February, but has no plans to offer current accounts.

Tesco hopes its banking unit’s current account will help entice customers back into its supermarkets after suffering its worst quarterly sales drop in 40 years (Tesco share price falls as data reveals shrinking market share).
However, Higgins conceded that, in the short term, the new product will slow profit growth at the bank, which reported pre-tax profits of £153 million in the year to February 28, 2014. The bank expects its current account service to break even in its own right within “a modest number of years”, he said.
**Tesco share price**
Tesco’s share price rose yesterday, closing 1.22 percent higher at 294.10p. Of the 18 analysts projecting 12 month price targets for Tesco for The Financial Times, the median target is 291.00p, with a high estimate of 360.00p and a low estimate of 230.00p.
**As of Monday, June 9, buy Tesco shares at 294.95p.**
**As of Monday, June 9, sell Tesco shares at 293.00p.**


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