6th August 2012
The Tesco offering has some attractive elements. For example, borrowers will receive Clubcard points as they pay off their mortgage. However, the rates do not compare with some of the new fixed rates on offer from the main UK banks. For example, Tesco has a two-year fixed rate at 3.19%, around 0.2% higher than many of its rivals. The key will be the flexibility of the lending criteria.
Many of the major consumer brands are now fully engaged in financial services – John Lewis, Marks & Spencer and Sainsburys, for example. Yet, these companies have valuable brands. Can a foray into ‘toxic' financial services be worth it? To the external eye, the sector seems loaded with banana skins – from PPI products, to dodgy lending criteria, to downright dangerous structured products.
This link shows the 100 most valuable brands in 2012. It estimates that the Tesco brand alone is worth $18bn – the 36th most valuable in the world. But while Tesco has had its share of brand difficulties, brand is perhaps even more important for a company such as John Lewis, which has seldom put a foot wrong in cultivating its brand and its customer loyalty.
From a financial perspective, moving into financial services may well be worth it. Revenues at Tesco Bank are currently growing at 13.6% per year. It is the strongest growing part of the business outside of the US business (which remains loss making), beating even the growth in Asia. Done right, it is also a way to draw the consumer closer.
The question is whether it is the banks that are toxic, or banking itself that is toxic. The banks consistently feature in the ‘most hated companies' lists. This list , compiled by Online Opinions has RBS and Lloyds in its top 10. No doubt if had been done more recently Barclays would also have made an appearance.
However, consumers don't seem to have been turned off banks because of what they do, but because of how they have been run: "A spokesman for Online Opinions said: 'Banks get billions of pounds to rescue them from the public then go and splash out millions on bonuses while the rest of the country is in recession – no wonder they are so disliked." This suggests it is banks rather than banking that is the problem.
Equally, some banks have managed to avoid the ‘toxic' tag of the larger UK banks. First Direct, for example, consistently wins awards for customer service, and has built a powerful independent brand. The Millward Brown survey estimates that the HSBC brand is worth $18.3bn. Visa and American Express are worth $38.3bn and $20.2bn respectively.
Certainly, the big consumer names appear to believe that they can be a trusted alternative to the banks, rather than seeing their precious brand infected with the virus of ‘banking'. Marks & Spencer, for example, says : "M&S is one of the most trusted brands on the UK high street and we've achieved this by continually listening and responding to the needs of our 21 million customers. This bank will be built on M&S values; putting the customer at the heart of the proposition and delivering the exceptional service that sets us apart from the competition."
It is worth considering what makes a toxic brand in the first place. This piece from griibdesign says: "Brands have to be credible and honest if we are to connect and value their offer…Building a brand requires constant effort, but can be cut short or cease to exist very quickly. (For the News of the World), it took 168 years to build and just a few weeks to succumb to public pressure and close."
So theoretically, if this new breed of banks avoids these pitfalls, continues to nurture their brands, they should be fine. However, a move into banks gives them more working parts. It raises the stakes. As such, it must make these companies more vulnerable.
David Brennan points out here: "one thing I've learned over the years is that people with a grievance outshout the satisfied every time. Try it the next time you're at a dinner party and the conversation has dried up. Ask the question: "Are there any brands out there that you would refuse to buy, at any price?" and listen to the grievances pour out. There will be no more awkward silences."