Asda joins race to ‘replace’ battered High Street bank

The plunging popularity of banks has prompted Asda to follow its closest rivals in taking an aggressive step into the world of personal finance.

The move by Britain’s second-largest supermarket group paves the way for a showdown with Tesco and comes only a month after Marks & Spencer announced plans to open bank branches in its stores.

Asda is rebranding its personal finance division today as Asda Money in an attempt to extend its relationship with the 18 million customers it serves each week. It is also introducing a credit card with a cashback scheme that takes aim at its store rivals, a move that is as close as Asda has come to ending its long-established resistance to running a loyalty scheme.

Kirsty Ward, the head of Asda Money, said that the renewed assault on the personal finance market had come after a collapse in public confidence in banks and lenders: “There clearly is an issue with trust within the sector at the moment,” she said.

“What Asda can bring is our core business of 18 million shoppers. We wouldn’t want to do anything that jeopardises that, which makes it more important than ever that we get it right in financial services.”

Asda has been in the personal finance market for a decade but is dwarfed in the area by Tesco and J. Sainsbury. Tesco Bank made a trading profit of £164 million last year on a turnover of £1 billion; in contrast, according to a Companies House filing for 2010, Asda Personal Finance made £7.6 million. Tesco, which wholly owns its banking division after buying out Royal Bank of Scotland, its joint venture partner, in 2008, is poised to begin offering mortgages within weeks.

Whereas most retailers use a tie-up with a banking player — Sainsbury’s Bank is a joint venture with Lloyds Banking Group, while M&S’s banks will be owned and operated by HSBC — Asda is employing a different approach, setting up deals with third parties for specific financial products.

“The market is changing, customers are looking for new options and we want to remain agile. It’s difficult for larger players to be agile,” Ms Ward said. “The benefit of the multi-partner model is that we can adapt and go where our customers want us to be.”

Richard Hyman, Deloitte’s strategic retail advisor, said that the travails of the banking industry presented an opportunity for retailers. “It’s not so much a question of whether the retail brands are strong enough as whether trust in the banks has sunk low enough. It seems that with every passing few months, the banks are plummeting further and further.”

The credit card launched by Asda today will have a cashback element that effectively makes it a loyalty card by proxy, despite the trenchant rejection of such schemes by Asda, a subsidiary of Wal-Mart.

Ms Ward said that the cashback offer differed from other retailer’s credit cards and loyalty cards because it offered cash instead of points or vouchers.

The credit card scheme is operated by LaSer, a Solihull-based company that offers third-party loyalty and credit card schemes.

* Taken from Marcus Leroux of The Times on 9th July 2012