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UK supermarkets stock up on banking productsTHIS week the financial services systems giant NCR is holding a seminar in London with a provocative theme: "Consumers need banking; but do they need banks?" The answer in Britain is that banks - in their traditional form of dignified buildings on the High Streets - are needed less and less. Over the last 10-15 years a technological revolution has hit UK banking and added to that has been intense competition from building societies as they moved to become super-banks. Since 1990 some 130 000 jobs have gone from the banking and building society sector with 2 800 branches being shut down. Now the competition is hotting up from the ever more aggressive supermarket giants. Having muscled into the fuel retailing market with their own discounting service stations, they are also offering banking. Shops with banks are not a 20th century idea. Harrods, the up-market Knightsbridge department store where customers can buy practically anything, has had a bank on the premises since 1893. No longer controlled by the store - that was vested with outside trustees by the Bank of England following a critical report on Mohammed al Fayed, who took over Harrods in 1985 - Harrods Bank is unique. It has only one branch - in the bowels of the store - although its 3 500 customers can draw cash from 19 000 Visa Delta cash dispensing machines in the UK and another 240 000 worldwide. And it offers a highly personalised service from investment advice to mortgages with the convenience of being open whenever Harrods is open - late evenings and some Sundays and public holidays. But Harrods is dwarfed by Britain's biggest clothing and food-store chain, Marks and Spencer (M&S). It built a financial services division, which made £50-million pre-tax profits last year, on the back of the introduction of charge-cards for customers in 1985. M&S Financial Services expanded to become an authorised bank after two years and then added a unit-trust management company with a life and pensions operation launched in 1995 to complete the picture. The division has prospered in its marketing to more than 5.1-million M&S charge and budget card customers, although they account for only 25% of sales. By the end of the 1995-96 year M&S had opened 215 000 personal loan accounts amounting to £1.3-billion and it was managing £400-million worth of investments for 100 000 clients. In the last 12 months the process has accelerated as supermarkets become ever more competitive. Tesco, which vies with Sainsbury for the supermarket crown (each group has monthly sales in excess of £1-billion), set up its Personal Finance business a year ago in a venture with National Westminster, the biggest bank in the UK. The group extended the use which could be made of its Clubcard held by 9-million customers - which recorded loyalty bonus points redeemable against the cost of purchases. The new Clubcard Plus was a payments and savings arrangement. Cardholders would deposit money in their Clubcard Plus accounts-- held by NatWest because Tesco was not a bank - equivalent to their estimated monthly spending on groceries and petrol. The deposit earned 5% - against 3% typically for instant-access balances of under £500 - and the cost of purchases were deducted when the card was used at the tills. An overdraft facility equal to the usual monthly spend was available at 9%. Cardholders could use the facility as a savings account and could also draw cash from any of NatWest's 2 500 tills throughout the UK. Some 190 000 people signed up for the scheme - almost double the level expected. In February this year Sainsbury's and the No 3 supermarket group Safeway hit back with their own financial services. To meet the new threat Tesco ended its arrangement with NatWest and a partnership was formed with Royal Bank of Scotland to broaden the use of the Clubcard Plus with an internationally acceptable credit card and a wider range of financial services. Meanwhile Sainsbury, with a 12-million customer base, stole a march by becoming the first supermarket to enter full-blown consumer banking with the opening of Sainsbury's Bank, a 55-45 joint venture with the Bank of Scotland. It has grown fast. From a standing start in late February, Sainsbury's Bank has won 225 000 customers and deposits of £350-million. The full gamut of products is on offer. Instant Access savings accounts offering 5.75% - the best so far - and personal loans of up to £15 000 which can be arranged on the telephone. Borrowers can get a three-month repayment holiday. Mortgage lending is planned to follow. Its Classic and Gold Visa credit cards can be used anywhere, including rival supermarkets. And shoppers using either of these in conjunction with their Reward card earn a 2% discount.
Safeway's ABC Bonus Account, operated with Abbey National, the first building society to be listed and turn itself into a major bank as well as life insurer, resembles the initial Tesco operation.
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