Tesco pays £950m to launch its assault on the banks

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Tesco is set to launch a full-on assault on Britain's biggest banks after paying £950m to buy out Royal Bank of Scotland's share of their personal finance joint venture.

Britain's biggest supermarket said it would launch current accounts and mortgages to turn Tesco Personal Finance's (TPF) existing collection of products into a full-service retail bank selling through its stores and online.

Tesco underlined the seriousness of its intent by appointing its finance director, Andrew Higginson, to the new job of chief executive of retailing services. The grocery giant has also hired Benny Higgins, the ex-RBS retail banking chief, to head the bank with Iain Clink, who headed RBS's cards business, joining as finance director.

Mr Higginson's task is to more than double annual profits from services to £1bn from £400m during his tenure. Financial Services makes about half the profit at the services business, which also includes telecommunications and internet shopping.

Tesco believes it can use its customer base, brand and reputation for value to expand the business in Britain and international markets. Mr Higginson gave the "labyrinthine" charges on banks' current accounts as an example of how Tesco could offer simple products. "We don't start from that position. We can be much more transparent on our pricing," he said.

The reputations of Britain's banks have taken a battering in recent years as consumer groups and watchdogs have attacked their charges and practices for overdrafts, late credit card payments and protection insurance. They have also been hit by massive writedowns and losses from the global credit crunch, weakening their ability to lend.

Asked whether Tesco could take advantage of the banks' woes, Mr Higginson said: "The growth of the bank as TPF has demonstrated there is a real appetite for Tesco in this area. If we provide simple, easy-to-understand products for customers they will buy them because they trust us and we see them right."

He added TPF did not have exposure to corporate loans or the US housing market like its rivals.

TPF sells general insurance, savings products, credit cards and personal loans. It also operates cash machines. RBS has contracts to provide the services for between two and seven years, after which Tesco could stay with RBS or switch to another provider. But Mr Higginson said Tesco would probably start to "manufacture" some products itself. "The current account is one [product] we would look at very carefully. It is often at the core of people's relationship with their financial services provider." TPF has not competed in mortgages because they have been unprofitable but will now look at the market, he said.

TPF was set up 11 years ago. RBS provided the products and sold them under the Tesco brand. Tesco began planning early last year to approach RBS with a view to buying its share. When talks started, RBS was caught up in the credit crunch. Its decision to sell was partly driven by capital needs. RBS will book a cash profit of about £500m from the sale.