Surprising Rivals Challenge British Bank Giants: Grocers

American Banker, January 14, 1999 | Go to article overview

Surprising Rivals Challenge British Bank Giants: Grocers


By KANTROW, YVETTE D.

When the British supermarket chain J. Sainsbury plunged into financial services in 1997, it was guided by a simple observation: "People didn't have one good thing to say about banks," says Richard Chadwick, deputy chief executive of Sainsbury's Bank. "There was a huge opportunity there."

For close to two years now, the giant grocer and its largest rival, Tesco PLC, have been hawking everything from savings accounts to personal loans to credit cards. Together, they have captured some $4 billion in deposits-without investing in a single bank branch.

The programs, which are delivered mostly over the telephone, are the most visible among a slew of banking offerings from newcomers to the United Kingdom's financial services market. Seven nonbanking companies, ranging from supermarkets to insurers, captured 2.1% of all money that flowed into British deposit accounts in 1998.

"Banks got quite complacent about the way they treated their customers," said Matthew Walker, a financial services analyst with Datamonitor Europe in London. "They were very rigid in the way they enforced their rules."

The grocers' push into banking is forcing Britain's oldest banks to revisit their approach to customer service and to beef up their own 24-hour telephone banking operations. And it is providing a chilling reminder to U.S. bankers that in today's environment, competitors can emerge from practically anywhere and quickly take market share.

The message couldn't be more timely. In 1998, U.S. companies as formidable as State Farm Insurance and Nordstrom Inc. mapped ambitious plans to enter the U.S. retail banking business. State Farm is looking to offer a gamut of consumer deposit and loan products through a national network of 16,000 offices.

"Banks are so close to losing their franchise," said Donald Taylor, president of FISI Madison, a Nashville consulting firm. Supermarkets may not be a threat in the United States, he said, but brokers, insurers, and consumer-savvy technology companies definitely are.

In the United Kingdom, Datamonitor Europe projects that nonbank entrants to the market, as a group, will control some 5.4% of British deposits by 2003, up from 1.5% today. That would easily place the group among the market's top 10 players, where they would rub elbows with the likes of Abbey National and Woolwich, two of England's most established building societies, or thrifts.

"They are a great competitive threat," said Brendan Cook, head of market development for Midland Bank PLC. "The key to all is a brand name and a link to customers."

The invasion actually started more than 10 years ago, when the venerable retailer Marks & Spencer began offering a range of financial products-minus savings accounts-to its customers. But the pace has picked up considerably in recent years amid a big a shift in the country's banking landscape.

Once firmly entrenched in their own segments of retail banking, the United Kingdom's building societies, commercial banks, and insurers now regularly compete in one another's backyards. That has prompted consumers to "unbundle" their financial services, picking the best products from a growing array of providers.

"The checking account is still the cornerstone or core relationship," said Mr. Cook of Midland. "But there is a growing awareness that you can put funds elsewhere."

Increasingly, "elsewhere" is a nonbank. Seeking to leverage tremendous brand equity into retail banking share, companies ranging from Richard Branson's Virgin empire to venerable insurer Standard Life have recently entered the telephone banking fray.

In October, Prudential Insurance launched a high-profile account with notably high rates. Dubbed Egg, it offers 8% interest on savings, and attracted more than $1.5 billion in deposits in just two and a half months. Automotive companies such as Volkswagen and BMW are also studying the market. …

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