Tesco Bank and Virgin Money - Can Banking without the Banks Work?

Friday, 29 July 2011 10:58
Despite the excitement surrounding their plans, new entrants such as Virgin Money and Tesco Bank face major challenges in building full-service retail banks.

Banking without the Banks, written by marketing expert Professor Steve Worthington and industry consultant Peter Welch, examines the prospects for “non-banks” such as Virgin Money and Tesco Bank in the wake of the financial crisis that has damaged the reputation of the ‘traditional’ banks. The report sets out specific challenges that the likes of Virgin and Tesco face in building full-service banks.

Published: December 2010
Download the FREE Introduction here: 

PDF UK £450 + VAT/EU €514 + VAT/RoW $733
Tesco Bank and Virgin Money - PDF £540.00 Add to Cart


Euro and dollar prices are illustrative. Euro and dollar prices will be calculated using current exchange rates at checkout.

Key findings

The report notes that Virgin and Tesco are not new to financial services. Both have been niche players for more than a decade, concentrating on a select range of products and operating through partnerships with existing banks. But they now plan to offer full-service retail banking, with both current accounts and mortgages being talked about. Tesco has bought out RBS’s stake in their financial services joint venture. Virgin Money is buying a small regional UK bank to expedite its acquisition of a banking licence and provide a platform for retail banking.

The report underlines the current small scale of Virgin’s and Tesco’s financial services operations. For example, were Tesco Bank a building society, it would rank only 10th between Principality and Newcastle. The only way for Virgin or Tesco to achieve scale quickly would be through a major acquisition. The planned sale of Northern Rock and divestments required by Lloyds and RBS may present opportunities. But the report underlines that acquisitions on this scale would carry significant integration risks for the non-banks.

The report sets out specific challenges that the likes of Virgin and Tesco face in building full-service banks:
•    Despite all the moves to facilitate account switching, consumers remain instinctively reluctant to change their current accounts.
•    Further, banks remain reliant on opaque and unpopular means of generating revenue from their current accounts, namely high overdraft charges and little or no interest paid on credit balances. Can Virgin and Tesco offer current accounts profitably without relying on these and so threatening their reputational advantage?
•    With much reduced access to wholesale funding following the crisis, Virgin and Tesco will need to build large deposit bases in order to offer mortgages. But they will face intense competition for retail deposits from existing banks and building societies.
•    Virgin Money and Tesco Bank have relied heavily on credit cards and consumer credit to drive their growth. However, in the wake of the crisis, prospects for consumer credit are bleak. And it is not clear which other banking segment offers an equivalent “growth engine” to support their push into full-service banking.


1. The ’non-banks’    
1.1    Virgin Money    
1.1.1    Development to date
1.1.2    Business structure
1.1.3    Services offered
1.1.4    Financial performance
1.1.5    Expansion plans

1.2    Tesco Bank
1.2.1    Development to date
1.2.2    Business structure
1.2.3    Services offered
1.2.4    Financial performance
1.2.5    Expansion plans
Case study: ICA Banken in Sweden

2.   The retail banking market    
2.1  Market structure and shares    
2.1.1    The ’big four’ (Barclays, Lloyds, HSBC, RBS)
2.1.2    Banco Santander
2.1.3    Building societies
2.1.4    Other banks and financial services companies
Case study:  Northern Rock
Case study: Post Office Financial Services

2.2   Prospects for market segments  
2.2.1    Current accounts
Case study: The OFT case against unarranged overdraft charges
2.2.2    Mortgages
2.2.3    Credit cards and consumer credit
2.2.4    Deposits

3.    Analysis
3.1  SWOT framework        
3.2    Opportunities
Case study: Lloyds and RBS:    Divestments required to meet EC State Aid requirements
3.3    Threats
3.4    Strengths
Case study: Tesco Clubcard
3.5    Weaknesses
3.6    Conclusions


Steve Worthington
Steve Worthington is Professor of Marketing at Monash University, Melbourne, Australia, in the Faculty of Business and Economics. He previously worked in the UK as Marketing Group Head within Co-op Brand, the own label of the Co-operative Wholesale Society (CWS). Prior to that he was Head of Marketing and Planning with the Co-operative Bank, a subsidiary of the CWS.

Steve has published widely, both in academic journals such as Journal of Marketing Management, Journal of Retailing and Consumer Services and the International Journal of Bank Marketing, and in more practitioner-focused publications such as the Financial
Times, European Card Review, and Cards International. He has also written a number of case studies concerning both bank and retailer provision of financial services. He is the author of Branding and Relationships in Plastic Cards, published by the Financial Times and The China Cards Market 2005/2006 published by VRL.

Peter Welch
The late Peter Welch was a widely respected independent consultant specialising in the banking and healthcare sectors.  Within banking, his main areas of work were market and competitor analyses, with a geographic focus on pan-European developments, and a sectoral focus on personal banking, cards and payments.  His reports include Inside Fraud, an analysis of payment card fraud trends across several European markets, published in late 2009 by PCM and sponsored by Visa Europe, and Rethinking Banking Efficiency, a study that challenges established approaches to the measurement of bank efficiency.

In Peter's memory, all revenues from the sale of this report will be donated to the charitable causes he supported.