To add to the all-pervading feeling that stores are taking over our lives, Tesco is to up the stakes in the customer loyalty battle. The supermarket group yesterday announced plans for a new budget-account card that will offer far better interest rates than traditional banks and building societies.
It is seen as the first in a number of moves planned by supermarkets that could see them offer a range of financial services including pensions, life- assurance policies and bill-payment facilities.
Tesco's new initiative is based on its hugely successful Clubcard loyalty scheme, which was launched in February last year and now has 8.5 million members. The new Clubcard Plus scheme starts on 17 June and will be run in conjunction with National Westminster Bank. Tesco claims that the scheme will offer customers an easier way to budget for their shopping and petrol.
Members pay a regular monthly sum into the budget account to cover the amount they typically spend on groceries, and petrol as well as some cash requirements.
Customers can then use their card to pay shopping bills in Tesco and can use it to withdraw cash both from the supermarkets and from the 2,500 NatWest service tills.
The interest rate on outstanding credit balances is 5 per cent, approximately 10 times the rate on some current accounts. Members who go over their balance are charged an overdraft interest rate of 9 per cent, again lower than most banks and building societies.
The Tesco chairman, Sir Ian MacLaurin, said that the introduction of the new card followed extensive research into customer requirements and that the project was modelled on similar schemes in France and Sweden.
"It makes paying for the weekly shopping bill, buying petrol and getting cash simpler, plus it offers a rate of interest which puts many traditional savings accounts in the shade," he said.
However, there are possible weaknesses in the scheme. Customers who shoot over their overdraft limit could hold up check-out queues while problems are addressed.
Customers could also find that their standing order for Tesco's account pushes them into the red in their traditional bank account, on which they will incur higher interest-rate charges.
Some customers may not wish to juggle two accounts. It is also possible that the form- filling requirements could deter some customers from applying.
Sir Ian said the scheme was being offered to Tesco staff first, so that they would be well briefed to answer customer questions when the card goes public in two weeks' time. He declined to comment on any what other financial services Tesco may offer.
The group has signed a three-year deal with NatWest, which will operate the scheme. After that it is possible Tesco would apply for its own banking licence and operate a branded deposit account.
Tesco's rivals are also working on similar schemes as the supermarkets jostle for position in the grocery battle.
Safeway is working on turning its ABC loyalty card into a credit card; Sainsbury will launch a loyalty card later this summer that could involve some financial products; and Budgen has already launched a Visa credit card.
Tesco's move was applauded by supermarket analysts. Mike Dennis of stockbrokers NatWest Securities said: "It is an added way of locking in customers and it makes it that much harder for Tesco's rivals to beat it."
Graham Gould of the Cobra Group, a strategic consultancy, said Tesco's move was part of a growing trend that will see well known high-street names capitalise on the strength of their brands. "I think it's the start of a trend," he said. "There are other organisations that have stronger brand values and better access to their customers than banks or building societies.
"Supermarkets are opening branches, banks are closing them. Banks are moving further away from their customers with telephone banking; supermarkets are moving closer to theirs."
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