Supermarkets major threat to banks

Supermarkets such as Tesco, should be in a strong position when they expand their personal finance offerings to include products such as current accounts according to Defaqto's latest report into the banking market.

The report, Retail Banking: Challenging Times, suggests that supermarkets are well placed to enter into the full banking service market due to their brand recognition.

David Black, Principal Consultant of Banking at Defaqto and author of the report, said: "Supermarkets generally enjoy impressive customer image, brand recognition and the trust of their customers. This coupled with the fact that a member of just about every household has to physically visit a grocery store or its internet site, at least once a week cements the potential attraction."

Black also believes that with the UK likely to move to a paid for current account model in the medium term, supermarkets could cross-subsidise their operations by offering free full service current accounts to those that spend a certain amount in their stores each month.

"This would assist the effective ‘lock in' of such customers to buy the majority of their groceries with that supermarket, and also incentivising people to switch to their current account."