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A bank account on your shopping list?

That’s the future, if Tesco has any say in the matter. Just a couple of weeks after Facebook announced that it is to offer payments in Europe, banks in the UK now face war on two fronts, in the battle for their customers’ personal finances. They now face the prospect of being assailed by highly agile, customer-centric tech firms on one hand, and the vast brand capital and marketing expertise of the high street retailers on the other. 

Where the market-leading Tesco heads, its competitors are sure to follow. Both Sainsbury's and M&S already have rudimentary personal finance businesses, which they could scale up, and both Asda and Morrison's have the capital and motive (by way of severe competition in their main grocery businesses) to enter the market if they see Tesco succeeding.  The prize – of owning two major facets of a customer’s personal finances – is simply too attractive. 

And Tesco’s success is not unlikely. Facebook and the other giants of Silicon Valley will be able leverage their advantages in customer data to offer financial services in a targeted, customer-friendly manner. Similarly, the retail giants of Cheshunt, Bradford and Leeds can look at the retail banking industry with serious a data advantage, though theirs is a subtly different edge. 

While Facebook knows who you are and what you do, but Tesco knows what you spend. Retailers’ relatively large share of customer pockets mean that they are in a very good position to provide retail financial services on a highly personalised basis. With the right network of partners and service providers in place, Tesco and other retailers will have the capability to provide customer-centric services of far higher quality than incumbent retail banks.  Tesco alone accounts for over 10 percent of consumer spending in the UK, and its well-orchestrated loyalty schemes mean that the count amongst individual customers and households (and in some towns) is frequently much higher indeed. 

And it could be argued that retailers’ customer data is even more useful in this respect than that of social networks. Very few people are entirely honest about their lifestyle on Facebook – it’s a rare person who doesn’t try to show their best side to the Internet, and these subtleties can be hard to interpret by even the most sophisticated artificial intelligence. It’s very difficult, however, to lie about whether your weekly shopping basket is full of value baked beans, or fresh asparagus and truffle oil. 

Even when a customer has shopping basket full of baked beans and truffle oil, that is less likely to confuse the system than to provide even more useful intelligence. Such a buying pattern, for example, may indicate a customer whose budget is tight, but who likes to treat themselves, or to entertain. 

Such a customer could be very receptive to a credit card with a reward feature, for example, which may allow them to spread uneven expenditure, and occasionally indulge a taste for small extravagances. In a similar manner to the contents of a customer’s basket, the consistency of its contents, the frequency of shopping trips, and the method of payment could all give valuable insight into a customer’s means, lifestyle, priorities, and personal financial management skills. 

Data analysis of this type will allow the retailer to offer personal finance products and advice with at least equal, if not much greater accuracy, than anything that could be done with data gleaned from Facebook and the web. 

Moreover, retailers won’t be held back in offering this kind of agility by the inflexible legacy IT platforms that hamper established banks, nor do they suffer from lack of trust, as some of the newer technology brands may find they do. Tesco’s decision to offer only a paid-for current account is entirely consistent with the brand’s professed values of transparency, value and service, and a more agile IT environment will allow them to update the features of their product very quickly in response to customer demand and feedback. 

While some commentators have questioned whether this is unjustifiably exclusive, it’s unlikely that a company that can make money selling a loaf of bread for 47 pence will be unable to offer a more basic or lower-priced service. 

If the UK retail sector commits the full force of its formidable marketing and product management expertise to the task of making inroads in the retail banking industry, then the incumbent retail banks will have to drastically raise their game as far as agility and customer-focused products are concerned. Right now, Tesco is clearly the most threatening prospect, but if the company succeeds in this venture, then it will not be long before other competitors take to the field.


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