Tesco Bank has announced a further delay to its entrance into the mortgage market until early 2012. As a result, it will be entering the market three years after the peak in customer dissatisfaction with the major banks owing to the financial crisis, but at a time when mortgage availability has failed to recover. Consequently, the golden opportunity for Tesco Bank may have already passed.
In 2009, at the height of anger with the major banks and mortgage providers following the financial crisis, Tesco Bank, formerly Tesco Personal Finance, announced its entrance into the mortgage and current account market, which was planned for late 2010. However, after initially delaying the introduction of mortgages to autumn 2011, their introduction has now been delayed until early 2012, with a delay in the introduction of current accounts also expected to follow.
Tesco's retail servicing division, of which Tesco Bank forms a part, is seen as a key area of future growth for the business. However, the culmination of a focus on its core business, the impact of selling payment protection insurance, and difficulties experienced when moving RBS's systems to its own after it bought out RBS's 50% share in 2008 means that Tesco Bank's entry into the mortgage market has been delayed again.
In 2009 when Tesco Bank initially announced its decision to enter the mortgage market, 33% of consumers responding to the Datamonitor 2009 Financial Services Consumer Insight (FSCI) survey stated that trust in their primary bank had decreased following the financial crisis. However, according to the 2011 FSCI survey, 60% of customers view experience in financial services as essential when choosing a new mortgage provider, ranking this as more important than being a well-known brand (56%) or having an untarnished reputation (51%), which are Tesco's two major selling points for its banking division. This could limit Tesco's opportunity to gain dissatisfied customers from the major mortgage providers as a result of the financial crisis.
While the opportunities for Tesco Bank presented by the animosity towards the major mortgage providers are decreasing, the mortgage market itself has not recovered from the financial crash. In 2007 the mortgage market peaked with around GBP360bn of lending. In 2010, however, lending was only approximately GBP135bn, and in 2011 it is not expected to reach above GBP140bn. Despite recent growth in the remortgage market, it is historically at a very low level, with the 0.5% base interest rate limiting the opportunity for financial gain via remortgage. Therefore, the market opportunities for Tesco Bank are small unless it is able to take significant share away from competitors.
As the opportunity presented by the negative publicity around the major mortgage providers may now have passed, Tesco Bank may try to gain customers through its traditional method of competitive prices that others in its market fail to match. However, with the base interest rate so low, it will be difficult for Tesco to achieve a significant price differential from its competitors.
Another way that Tesco may try to gain a market position is through its relatively unique situation of being able to encourage customers to move with Clubcard points or other incentives from its other businesses, as it has done with great success in the past with its credit card. Thus, with market conditions unappealing and animosity towards the banks no longer a major factor, Tesco will need to rely on low prices and appealing cross promotions to be successful when mortgages are finally introduced in 2012.