Supermarket Personal Finance

The big four supermarkets are doing a thriving business in banking and personal finance. Why and are they the cheapest option?

Washing powder, bag of apples, video, and of course, insurance for Rover the Rottweiler. It's the shopping list for 2000.

It won't have slipped your notice that supermarkets are becoming a one-stop shopping experience. But why should we want to buy our personal finance with our groceries? The reasons are a heady mixture of retail clout and a fundemental change in the way we now shop.

The Big Four - Tesco, Sainsbury, Safeway, and Marks and Spencer - are in heavy competition to provide every area of personal finance: life assurance to motor insurance, pet bereavement counselling to mortgages. Marks and Spencer's Financial Services (which began it all 15 years ago and now employs 1500 staff) saw profits before tax last year grow by 15%, in direct opposition to the faltering fortunes of its high street business.

In February 1997, Sainsbury's became the first supermarket, with the Bank of Scotland, to open a bank. It now has £1.7 billion in deposits. Tesco was quick to catch up. Now, in association with the Royal Bank of Scotland, it has 1.7 million personal finance customers. Safeway, with Abbey National, jumped on the bandwagon in January 1998. It is still the only supermarket to have bank branches with counter staff in nearly 50 stores.

What's their recipe for success?


Convenience is the key. We want all our products - food and finance - to be accessible. Recent Abbey National research shows why the response has been so good. "People like banking where they are going to be anyway - at the supermarket," says spokesperson, Gug Kyriacon, "and not having to make a separate trip to the high street. They like the opening hours too."

Fay Hogg at Tesco agrees: "We are a branch-based system, with customers able to bank when it suits them - even late at night. Most branches are open all weekend and 280 are open 24 hours."

Interest rates on personal loans stay low because supermarkets are able to attract customers so cheaply. There are leaflets at the checkout, to browse whilst you wait in the queue. Banks are losing out. With the increase in telephone banking, we rarely set foot in the branch, and there's no chance to grab customers with tempting leaflets.

Trust too is an imperative ingredient in the supermarket recipe. If Safeway's pizzas are good, ergo its ISA must be too. Our supermarkets are familiar and reliable. It's like taking advice from an old friend.

Big Brother

Loyalty cards provide supermarkets have a massive arsenal of information about us. They can target the exact financial products to suit our lifestyle, and offer tempting reward points with our purchases to boot.

It's more than just knowledge of our spending habits. They know what we like to eat, that we have dogs and children, that we're taking a holiday (and the brand of suntan cream we're packing). Does your bank manager know which handsoap you use or that you read The Daily Telegraph?

The supermarkets are exploiting saving apathy too. When once we put away 10% of our income regularly, the norm now is nearer 3%. Is it too cynical to suggest the more we save the more we'll have to spend?

New products are being launched by the minute. Safeway has just announced the first 60-day savings account offered at the checkout, and Tesco is piloting a instant travel insurance scheme, with cover at the checkout on presentation of a Clubcard. M&S is extending its in-store Financial Services Centres to 30 in the next 18 months, and Sainsburys has just launched a Direct Saver account paying from 5.75%.

Internet Banks a Threat

The supermarkets argued they could offer customers a better deal than they were getting from the high street banks. The threat now, however, is coming from Internet banks. With no overheads, Egg, Smile and the like have the power to look after their small savers better. Earn 6.00% gross on every penny in your savings with Smile, the Co-op's Internet Bank, compared to just 5.25% gross on savings of over £10,000 from Sainsbury.

But Fay Hogg for Tesco argues that it can be competitive on both fronts, high street and Internet banking: "People compare us with best accounts on the internet, like Egg for example, whereas some of our rates are better then some of theirs."

Tesco, the market leaders in terms of ideas and inspiration, is already very successful on the Internet anyway. Tesco.com has 750,000 registered users with 100,000 visits related to personal finance. Mortgages on the site can earn the borrower up to 20,000 Clubcard points. Current account banking is a possibility too.

But for all the attractions of one-stop shopping, the Internet may still have the edge. Tempting as it is to stuff in a leaflet with your organic carrots, shop around. In a comparison between Tesco's Motor Insurance and Direct Line (the Internet insurance supremo), Direct Line were able to better Tesco's offer by over £85 a year.

Personal Finance Shopping List

Sainsbury's

 24 hour free telephone banking
 Savings accounts including instant access, fixed rate bonds, Direct ISA
 Mortgages including buying to let
 Personal loans from 9.9% APR
 Contract purchase scheme with 3500 cars to choose from
 Visa Credit Card with double Reward points
 Insurance including home and contents, pet and travel insurance
 Just launched: Direct Saver Account

Tesco

 Visa credit Card
 Savings Accounts including ISAs
 Personal loans from 8.8% APR
 Insurance including home and contents insurance, pet and motor insurance
 Travel money
 Life insurance
 Secure investment bond
 Clubcard plus
 Mortgages via tesco.com
 Coming soon: cheque depositing at checkouts (available already at 100 stores) and pay-at-the-till travel insurance

Safeway

 Direct Savings Account
 ISAs including mini cash ISA
 Bonds
 In-store Abbey National branches
 Coming soon: 60-day postal notice account with 7.10% gross interest

Marks and Spencer

 Financial Services Centres in-store
 Cards: chargecard and budgetcard
 Personal loans from 8.9% APR
 Savings and investments including unit trusts and ISA
 Life assurance and pensions
 Coming soon: online car buying service, personal pension plan, life assurance including over 50s, home and contents insurance, postal foreign currency service


Supermarket Internet Sites
www.tesco.com
www.sainsburys.com
www.safeway.com
www.marksandspencer.com

June 2000