Banking: Tesco Bank announces the closure of all current accounts
- Tesco Bank announced that it is closing all of its current accounts
- Customers banking with Tesco will have until November to switch to an alternative option
- Tesco’s banking arm said only 12% of customers are actively using their current accounts
- Several high street banks have announced closures amid the massive shift to online
On July 27th, Tesco Bank announced the closure of its customers’ current accounts and said it would write to clients within the next 14 days to advise them of their different options with the banking retailer.
The banking arm of Tesco launched its current account in 2014, offering 3% interest on balances and Clubcard spending points to help entice customers to its service.
Although Tesco Bank has over 5 million customers holding savings, loans, insurance, and current accounts, they decided to close current accounts to new businesses in December 2019.
There are approximately 213,000 current accounts open today; however, the banking retailer estimated that just 12% of these are used as primary current accounts by clients.
Tesco said that they had seen limited activity across most of its current accounts, with some customers using them for other purposes such as saving pots.
The retail lender said it would write to its current account holders to inform them of the closure of their account, which is scheduled to terminate November end and advise them of alternative options available.
Alternative banking options for Tesco customers
Customers affected by the closures will either need to move their current account to another lending institution such as Santander, Lloyds and Halifax; move their balance to a Tesco Bank savings account or other types of personal accounts.
Tesco Bank offers several types of personal accounts, including credit cards, savings, loans, insurance, and foreign currency exchange services.
Besides more traditional products, the lender also offers a “Clubcard pay” account, which comes complete with a debit card that allows holders to pay, save and collect points while shopping at the retail giant’s stores.
The decision to close its current accounts comes after Tesco Bank reported a GBP 175M loss in April, after recording a GBP 193M profit in the previous year.
Tesco Bank Chief Executive Gerry Mallon said: “The way customers shop and manage their money is constantly evolving, and we are committed to developing products and services which align with the needs of Tesco shoppers.”
Initially, Tesco believed that entering the market for financial services would be a profitable opportunity – that no longer appears to be the case as the British retail bank has been reducing its financial services operations since 2019.
Tesco’s current account closure follows a move made by UK multinational retailer Marks and Spencers (M&S), which said that all of its customers’ current accounts would be closing in August.
M&S Bank had built up a client base of more than three million customers over the years in a joint venture with UK financial services giant HSBC.
However, the rise in online banking created new challenges for the department retailer, which has already closed all of its in-store branches – another sign that traditional bricks and mortar stores have faced challenges in the wake of COVID-19.
Tesco Bank Chief Executive, Gerry Mallon, said that the lender had decided to close its current accounts to “find a more suitable alternative for customers, many of whom are using their primary account for a different purpose.”
Mr Mallon added: “We will pay particular attention to supporting any vulnerable customers and those in need of financial assistance to ensure they find a suitable alternative depending on their circumstances.”
By November 30th 2021, Tesco Bank current account holders must decide whether they want to switch providers or take advantage of the retailer’s other banking services.
Customers banking with Tesco can switch to a new current provider via the Current Account Switching Service (CASS) or speak with a financial accountant, who can move balances over to another service, e.g. savings.
The bank has asked customers who are not switching current account providers to end any regular incoming or outgoing payments and ensure they have a net balance of zero by November 30th.
Tesco Bank unable to break the dominance of UK’s largest banks
Tesco is one of several UK supermarkets that expanded into the financial services market in a bid to disrupt Britain’s banking scene and capitalise on the Government’s desire for a new clutch of so-called “challenger banks”.
However, shrinking margins have dented plans to break the dominance of Britain’s Big Five players on the high street, Barclays, HSBC, Lloyds Bank, Royal Bank of Scotland (RBS) and Standard Chartered.
In 2019, Tesco also offloaded its mortgage portfolio to Lloyds Banking Group, as the store’s capacity to challenge the dominance of high street banks faltered.
Initially, the retailer saw itself as far more than just a grocery store, hence its expansion into financial services. However, stricter regulations, the decline of traditional banking and the emergence of digital banking apps have blurred that vision.
Lenders want people to hold active current accounts with them as it generates a profit for the bank. However, this was not the case for Tesco Bank, which said only 12% of customers were actively using their Tesco Bank current account.
Digital providers such as Starling Bank, Monese and Monzo are also attempting to break the status quo and break the dominance of high street banking brands.
In other news, Lloyds Bank customers with older packaged currency accounts could pay fees worth up to GBP 28 a month come October.
Current account holders who opened either a Lloyds Gold, Premier or Platinum account pre-2005 could lose access to perks such as free travel insurance, mobile phone insurance and AA breakdown cover if they aren’t willing to pay fees.
Lloyds said it would write to customers that have been affected by the changes and give them until September 2nd to opt out and switch to a free account.
A Santander branch will also be closing permanently today following an abundance of closures across different retail and commercial banks in England and Wales.
Santander closes another branch amid increased shift to online banking
Santander announced the closure of 111 branches earlier this year, with the first to disappear from UK high streets being the Oadby branch in Leicester.
The move is part of a significant restructuring plan amid the growing shift to online, which has seen eight branches close in the Leicestershire region alone.
Although there has been less footfall in recent years, the coronavirus pandemic has accelerated the shift to online banking and caused many lenders to reshape their retail banking strategies.
The introduction of banking counters and ATMs had become a standard addition to supermarkets over the last few years. However, lenders are reassessing the need for high street stores now that more people are using smartphones and laptops for their banking needs.
Banks have tried to drive their digital services before the COVID crisis, but as thoughts turn to beyond the pandemic, solid recovery in the banking sector will depend on their ability to navigate the pressures of COVID-19 successfully.
However, concerns have been raised about the impact that the disappearance of brick and mortar stores will have on users with disabilities.
“Consumers most likely to require a branch for their banking needs are those who, for a variety of reasons, are not able to use online or mobile banking; potentially older, more vulnerable customers,” said Ms Brain, from data specialists Defaqto.
According to a consumer champion survey, 41% of disabled bank users have struggled to use banking services due to widespread branch closures.
The survey also revealed that 18% of disabled users find it difficult to navigate online security measures, and 30% have been negatively affected by branch closures due to memory problems.
When asked how they have found telephone banking, 36% reported difficulties with talking to accountants over the telephone.