Sainsbury’s was an innovator from the beginning in this space, as the age of Sainsbury’s Bank, begun in February 1997, goes to show. In recent years, its 50:50 ownership with Bank of Scotland, itself owned by Lloyds Banking Group since 2009, has proved something of a millstone, limiting its ability to innovate.
That has given space for supermarket giant Tesco, which entered banking on the heels of Sainsbury’s in late 1997, to steal a march. It ended its 50:50 deal with the Royal Bank of Scotland in 2008, buying its partner out for £950m.
Even so, it has taken Tesco some time to make best use of its independence: it expanded into mortgages only last year, despite announcing plans to do so almost three years earlier. Current accounts are due to follow soon.
As a result, Sainsbury’s faces a tight window of opportunity, before its rival retailer/bank hybrid develops a lead that’s hard to catch.
It is all win-win for George Osborne. If Sainsbury’s buys Lloyds out, he will see a boost to the capital base of the banking group, in which the government still owns a hefty stake. More important still, if Sainsbury’s Bank strikes out for independence, the UK has the beginnings of some interesting competition in retail banking, something for which politicians have rightly clamoured.
Yes, the scale of these scrappy new entrants is small – Sainsbury’s Bank has just 1.4m customers now and no current accounts or mortgages – but that may be to their advantage. The failed bid to sell off 631 Lloyds branches with 4.6m customers to the Co-operative Bank was designed to add another heavyweight to the high street. The thinking went that such scale was vital to stand up and be counted against the big players.
It ain’t necessarily so. Making a new bank big passes on the incumbents’ faults. Limited innovation in consumer products or rates arguably derives at least in part from the ponderous nature of large corporates, weighed down by their size and hobbled by the regulatory attention they attract. Creating another big bank to change all this may never have made much sense.
Instead, let’s welcome these upstart experiments in consumer banking from companies that have built national recognition and a wide-reaching physical network of branches in another sector. There’s much more incentive for them to be bold in order to scale quickly. And as we all know, there’s no sector in Britain that does price wars better than our supermarkets. When it comes to retail banking costs, that would be good for all of us, never mind George Osborne.