The news that retailer Marks and Spencer is to enter the banking sector may have come as a surprise to some, but with an increasing number of shops and supermarkets now operating in the sector, is the move into banking now a natural step for retailers?
M&S announced plans to turn its existing money division into a fully-fledged bank earlier this month. The retailer already offers insurance and travel products and will launch current accounts for the first time later this year.
But Marks and Spencer has already indicated it will not offer mortgage products until at least 2013. This delayed launch perhaps comes in light of the troubles fellow retailer Tesco has had in recent times.
The supermarket broke away from its partnership with Royal Bank of Scotland in 2008 but encountered problems transferring customers from the RBS system to its own.
Reports last summer suggested that an internal error which saw current account customers locked out of their online software forced Tesco into delaying its mortgage launch.
Even if such problems have been solved, Tesco’s application to gain a banking licence for its mortgage scheme is still pending with the FSA.
Marks and Spencer should avoid such problems as its banking arm is wholly owned by HSBC, with profits shared 50/50 between the bank and the retailer. But such an arrangement poses its own set of questions.
Are the products offered by M&S simply going to be rebranded versions of products offered by HSBC? If so, then what is the point?
HSBC says that it will launch new products targeted at M&S customers and argues that the use of the M&S brand will be beneficial to both parties. The partnership allows the retailer to diversify into a new market while the bank can reach a new group of customers.
“We get to use the great trust that M&S has built up and it helps us reach areas of the market our other brands would not be able to reach.” says HSBC’s Mark Hemingway.
“21 million customers walk through the doors on Marks and Spencer each week so obviously there’s a huge target market, but we have created a number of products that appeal specifically to M&S customers.
“M&S customers place a lot of emphasis on customer service and we will try and reflect those values in our new products.”
One supermarket with experience of the mortgage market is Sainsbury’s. The retailer’s Sainsbury’s Bank arm offered mortgage products for a number of years but was forced to pull out of the mortgage market in 2004 after customers numbers dwindled.
At the time the chain promised a quick return, but nearly a decade on a return is looking increasingly unlikely.
The retailer confirmed that it had no plans to return to the market at present, instead preferring to keep customers on board with loyalty deals.
“We are committed to our virtuous loyalty loop where customers are rewarded for banking and shopping with Sainsbury’s.” the supermarket said.
“Our growth strategy is based on providing our customers with tailored, good quality, competitively priced insurance products and best buy banking products.”
It is thought that account holders at M&S Bank will also be given access to exclusive special offers, with Tesco also planning to use its hugely popular clubcard scheme for similar purposes.
Building on existing customer loyalty to branch out into new markets is obviously appealing to retailers, but can a much-loved brand like M&S remain so universally popular when it starts rejecting mortgage applications?
M&S hopes innovation will lessen the impact of traditional banking problems. Its branches will be specially designed towards the retailer’s core customer base, with everything from bespoke seating arrangements to fresh flowers designed to offer a different banking experience.
Perhaps more importantly, M&S Bank branches will also be open on evenings and weekends. This will allow the retailer to outmanoeuvre traditional banks and provide valuable competition in the sector.
However, this new competition, which will see an increasing array of mortgage providers available to the consumer, makes advice from intermediaries more necessary than ever.
