Supermarket Banks: Opportunity for Some, Retreat for Others

Supermarket Banks: Opportunity for Some, Retreat for Others

Before Monzo and Starling threatened to disrupt the UK’s personal finance market, an earlier wave of challengers aimed to make banking more convenient than traditional providers. Supermarket banks grew into the market in the early 2000s, aiming to leverage trust and brand recognition while delivering services at locations customers visited anyway.

The logic stood and a number of these providers followed the rest of the market and invested heavily in the digitization of their platforms , just as customer expectations were changing. Things were seemingly going to plan: In 2016, Tesco Bank had an average customer satisfaction of 87.8%. A year later, Sainsbury’s had more than 2.1 million active banking customers.

Supermarket banking platforms:

Tesco Bank, Sainsbury’s Bank, M&S Bank mobile app landing pages

Source: Digital Banking Hub research

There has been a notable variation in quality of digital product, however. Some deliver an adequate digital customer experience that is on par with those of traditional banking providers. Others fall short. M&S Bank’s mobile app, for instance, appears plain and limited.

Those limitations are now taking a toll. M&S Bank closed all its current accounts at the end of August. Tesco will be doing the same by November and Sainsbury’s is currently in talks to sell its banking arm to a US-based private equity firm.

The retreat of supermarket providers from the personal finance space leaves an opportunity for others to move in. The most recent Current Account Switching data show some major gains for neobanks such as Starling while many traditional providers have posted net losses. 

Although neobanks may be the obvious contender to reap the benefits of the supermarket retreat from personal finance, big tech providers have reportedly been exploring options within banking for several years. Indeed, Amazon’s partnership with Affirm to offer buy now pay later (BNPL) services suggests the tech giant has more than a passing interest in personal financial services. Don’t be surprised if one of the world’s favourite online marketplaces looks to succeed where others have stumbled.

Tom Erasmus
Senior analyst, London Olivia Liu
Director, New York
olivia.lui@curinos.co
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