Stores Give Banks a Run for Their Money; CITY & FINANCE

Article excerpt

Byline: ANDREW ALEXANDER

JUST think of it - a bank with free parking space and a creche and opening on Sundays and offering top rates for deposit accounts.

It may sound too good to be true, but we are only talking about the supermarkets' surge into retail banking.

A reminder of how competitive supermarkets can be came with Tesco's announcement this week of an instant access account paying 6.5pc on a minimum deposit of [pounds sterling]1 - twice the rate of the High Street average, trumpeted the firm.

But competition is fierce. Sainsbury offers the same rate, plus a 'phone banking service offering mortgages, personal loans, savings accounts and two Visa credit cards.

Tesco expects to produce all the standard retail products. Safeway is experimenting with in-store banking, with Abbey National having its own stall. It also offers a debit card with 5pc interest on sums up to [pounds sterling]600, 1pc above for higher sums.

Asda plans a different route, with space given to a Lloyds/TSB desk offering the usual banking services.

Simon Samuels of Dresdner Klein-wort Benson describes these as 'potent threats' to traditional banking because of the supermarkets' excellent brand names and widespread presence.

DKB outlines the extent of the rising competition in a new circular.

Barclays, Lloyds/TSB, Midland and NatWest are seen as 'defenders' of the market average against the newcomers on the test of instant access accounts - and for one to three-month deposit accounts, too.

Mortgages from the High Street banks are outgunned by those on offer from First Direct (the Midlands' own 'phone banking system) and Direct Line.

Credit card rates are also under attack, with the Big Four's share of the market falling. Their overdrafts are not as attractive as those from the building societies that have become banks.

It is comforting to think that this once staid sector now bristles with competition. But Samuels thinks that this will only have a serious effect in the long-term. He says that banking's old friend - inertia - means that there will not be much chopping and changing by customers. Perhaps.

But there seems little doubt that a very full range of banking services will be on offer from the supermarkets before long.

They will not be doing this out of the goodness of their hearts or even in a desperate attempt to lure in customers to buy other items (though it will help). …