Tesco to take on UK's retail banks

Tesco says the buy out of the Tesco Personal Finance (TPF) venture will enable it to extend its financial services business from a collection of financial products to that of a "full service retail bank".

The supermarket plans to increase TPF's presence in stores and offer a wider range of savings products and says it may also introduce a current account "in the future".

TFP was established in 1997 as a 50:50 joint venture between Tesco and RBS which supplied the banking licence.

The unit now has over five million customers and operates a network of over 2700 ATMs. The division offers insurance and mortgage products as well as credit cards and loans. Last year the venture entered the crowded online price comparison market with the launch of a motor insurance Web site, Tesco Compare.com.

The division made a profit before tax of £206 million last year, with Tesco expecting income for 2008 of over £240 million.

Tesco has recruited Benny Higgins, formally head of the retail banking divisions of both RBS and HBOS, to run the division. Iain Clink, a former TPF CEO and until recently head of cards and direct finance at RBS, has been named finance director.

The supermarket says TPF, along with other service offerings like Internet shopping, could deliver it up to £1 billion in profits a year - more than double its current levels of around £400 million.

"We have become a trusted supplier of innovative products and services offering great value and I believe Tesco's special relationship with consumers will enable TPF, as a wholly owned subsidiary of Tesco, to move its business to the next level," says Terry Leahy, CEO, Tesco.

The sale, subject to regulatory approval, is expected to be completed before the end of the year.

RBS says it will continue to provide "certain commercial services" to the venture post completion.

Research conducted by personal finance Web site Motley Fool last year found that UK supermarkets have the potential to take millions of current account holders away from traditional banks.

A survey of around 1000 Fool subscribers found that almost half believe supermarkets like Tesco and Sainsbury's sell value for money financial products and 50% want the stores to offer more of these services.