Big data and a trust deficit present an opportunity for the Australian supermarket chains to shift into banking, according to former Tesco Bank CEO Benny Higgins.
The majority of Higgins’ background - who stepped down from his role at Tesco in 2017- is in banking.
He had worked for the Royal Bank of Scotland – helping set up a joint venture bank with Tesco.
Higgins (pictured), was in Sydney recently as chair of the ASX-listed Kyckr – a technology business that helps businesses manage their Know-Your-Customer obligations.
Having spent 10 years with Tesco Bank, he said the bank was effectively able to distinguish its services from the big name banks in the United Kingdom by playing to its strengths in customer service.
For the former bank executive, customer data and culture underpin the ability of retailers to provide unique customer services.
“The Royal Commission in Australia has highlighted a cultural issue. The banks are apologising for events that have nothing to do with any systemic issues. The heart of this issue is culture,” Higgins said.
Here, he means that unlike banking any misconduct will have an immediate impact on a retailer’s business.
“Retailers have a more customer-focused culture because of their direct influence on consumers. The significant problem for banks is that customers don’t have a clear idea of what is going on within their business.
“In a supermarket the price and product availability are transparent. The quality of service is straightforward and easy to see. I see a real opportunity for Coles or Woolworths to move into the banking sector.”
But what also plays into the strength of the retailer is customer data.
“You have to make sure you play to your advantages when you are running bank within a retail business,” he said.
Tesco Bank was able to forge a strong relationship with its customers through the Tesco Club card, which provided the bank with an insight into its customers. This helped the bank with not only its marketing strategy but also understand consumer behaviour.
Another “rich vein of strength” for the bank was that it gave Tesco Bank an insight into risk management and underwriting for insurance
In terms of market share, one eighth of credit card transactions in the UK is carried out on a Tesco credit card. One eighth of pounds circulated in the region comes from a Tesco ATM. Furthermore, around 20 per cent of Tesco credit cards is used instore or online, 80 per cent is used for transactions outside the Tesco business.
Retailers have a more customer-focused culture because of their direct influence on consumers. The significant problem for banks is that customers don’t have a clear idea of what is going on within their business.
Higgins acknowledged that the decision by Coles to move into personal loans could be a sign of more things to come in the local market. Higgins sees three types of strategies, retailers could adopt.
They could either distribute their products as white labels through a bank, strike a joint venture or set up a standalone business.
With the cultural and reputational issues being played out in banking, Higgins does not see a valid case for adopting the white label product.
Tesco’s joint venture began in 1997, with the retailer taking full control of the bank in 2008 to launch a standalone business.
He acknowledges that banks and retailers have obvious business differences.
“Banks are balance sheet businesses. A large portion of profit – in a particular period – is determined by the existing customer base. Retailers are effectively a PNL [profit and loss] businesses.
“Another distinguishing factor for most retailers is the day they sell a product, they crystalize a margin. You know how much you have made or lost on that day. When a bank sells insurance or a mortgage, it can only have an expectation of what it can make.”
The other issue is that misconduct in banking brings with it, reputation risk and fines, all “foreign concepts retailers are not used to”.
“There are differences, but I will think there is an opportunity for retailers in an environment of a trust deficit.”