Tesco, Britain’s biggest retailer, plans to follow up its £950 million buy-out of Royal Bank of Scotland by turning its personal finance business into a full-service retail bank. Boss Sir Terry Leahy seems to be convinced that Tesco’s future lies in the financial services sector.

“Services are bigger and faster-growing markets than food … As consumers look to make every pound work harder, it is a good time for Tesco to expand its presence,” he said.

Tesco plans to more than double profits from services, to £1bn from £400 million last year. The next big step may be to launch basic bank accounts, of the sort offered by the High Street banks, but no timeframe has been set. It may also consider offering mortgages at some future date, but probably not corporate banking services.

In the meantime, Tesco will use its stores as platforms to promote financial services, such as loans, savings accounts and insurance, more aggressively, and will also develop its online business. Its Clubcard means that it already has detailed knowledge of its customers.
 
Tesco's personal finance business, launched in 1997, made a £206 million profit last year, and has 5.5 million customers. But the company feels there is plenty of room for expansion in such areas as savings and home insurance, where its market share is still small. It has just 4.3% of the car insurance market, for example, and 390,000 savings accounts.

Tesco has appointed two former RBS executives to manage the Edinburgh-based business, which will have its own management structure to satisfy the regulator. Benny Higgins, former head of retail banking at RBS, will be chief executive of Tesco Personal Finance.

RBS will also continue to provide a range of services, including call centres, card issuing and back-office functions.

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