The UK’s second biggest supermarket, Asda, is the latest retailer to announce new personal finance products as customers flock away from malfunctioning and scandal-struck high-street banks towards alternative providers.
The launch comes with a rename of the supermarket’s personal finance arm to Asda Money, and follows in the footsteps of high-street favourite, Marks & Spencer, which begins its banking operation this summer.
What’s on offer? How does it compare?
The supermarket’s force majeure is a credit card that will offer unlimited cashback of 1% on all Asda shopping (including petrol) and 0.5% on all other spending.
Asda entered the market for utilities recently, and it’s also offering a range of insurance products as part of its brand relaunch.
The appeal of the credit card has to be its rare combination of cashback together with a 0% offer on balance transfers for 12 months. However, does it really compete as the collective sum of its parts?
- Cashback: While Asda offers 1% in store (and on petrol) and 0.5% elsewhere, Santander’s 123 credit card offers 1% cashback on all supermarket spending and a healthy 3% on petrol. It also sports an extensive summer cashback offer on all major bars and restaurant chains. While the Asda Money card has no annual fee, the Santander card is currently free for the first year of use when taken with the 123 current account [on which, more here].
- Balance Transfer: Asda’s 12 month offer on balance transfers is a modest one, and there are many that better it. With no offer on purchases, the Asda Money card pales against the best balance transfer cards, and even more so against cards that offer a generous combination of the two, like the Nationwide Select credit card.
- APR: The 14.9% representative APR is well below the average credit card rate, and is a welcome feature. The card doesn’t pass as a low-rate card, however, with Sainsbury’s Low-Rate card offering just 6.9%. The Nationwide Select credit card, meanwhile, combines offer generous 0% offer periods with cashback and a representative APR of just 12.9%.
It’s a friendly enough card, but none of its features really stand out in their respective categories. Even as an all-round card, it is found wanting against the likes of the Nationwide Select credit card (with Nationwide another of the institutions that has seen a surge in applications).
As we might expect, the Asda card benefits Asda shoppers. “No sh*t, Sherlock!”, as the saying goes. And without a purchases offer, the card is optimal for those who are able to pay off their bill in full each month.
It’s hardly surprising. Supermarket profits are stuttering, and with both M&S and Tesco sporting their own banks (albeit only Tesco’s with full autonomy), rival retailers are left to marshal their personal finance products for similar diversification, with the added bonus of price/non-price competition for brand loyalty.
Recent events have caused the British public, normally apathetic when it comes to switching bank accounts, to begin shifting their money to different institutions in the hope that they will find one ready to show a more ethical approach to banking.
Consumers have turned to other high-street banks and building societies that have avoided scandal. The Nationwide in particular has reported a rise in applications.
Metro Bank, which fashions itself as a customer-centric alternative to traditional high-street banks, is also emerging as a credible alternative. The bank reported that it was opening 1,000 accounts a week even before the onset of the recent wave of banking calamities.
And some consumers are now determined to shun the high-street altogether, turning to ethical lenders instead. Applications to Charity Bank and the Ecology Bank have doubled and almost tripled respectively.
Retailers will be hopeful of catching the slide out of Barclays and Natwest. One can only imagine M&S Bank’s unbridled joy at the near-perfect timing of its launch, just happening to coincide with the tide of new customers looking for alternatives. That is, until the reputation of its own high-street partner plummeted overnight.
The truth is, of course, that retailers are playing a fairly dangerous game. Only Tesco has the resources to construct a bank with full independence. Other retailers are working in profit-sharing and joint-venture partnerships with high-street banks.
At a time when so many are ready to vanquish ties with mainstream high-street banks, it is a little disingenuous for finance experts to laud the new competition offered by retailers without highlighting the shady collaboration with high-street banks that underpins them.
In fact, that question has only really surfaced when the nature of retailers’ FSCS registrations has arisen, and even that (and the issue of security at large) has continued to elude most of the population. [What is the FSCS?]
Asda remains the shadiest of them all. Following previous collaboration with GE Money and then Santander, the new credit cards will be issued by Sygma Bank, a subsidiary of Creation group.
Tesco, meanwhile, will be thankful that it bought out of its joint-venture with RBS well in advance of the launch of its current account next year. A recent hitch in a routine software upgrade carried out for the RBS group has caused innumerate problems for customers with Natwest and Ulster Banks.
And the revelation that HSBC could be fined as much as $1 billion for alleged money laundering offences will undoubtedly widen the rising tide of dissent towards the high street.
Episodes of this nature emphasise the operational and reputational risks that retailers could yet encounter. More importantly, the mishaps and misdemeanours that have caused consumers to switch in droves make it imperative that consumers know where they are switching to, behind the shallow aegis of the retailer.
More often than not, retailers do not represent a move away from high-street banks; just a more customised set of products delivered through an intermediary.
Having said that, it is hardly constructive to be over-cynical. Several in the mainstream media have leapt heavily onto that bandwagon.
Sure, a little more transparency is needed to ensure that customers who wish to avoid the high-street know where and how they are able to do so.
But there is no harm in adding competition to the market that is tailored to supermarket customers, regardless of its progenitor.
And the closer affinity that retailers have with their customers, together with the increasing pressure to keep them satisfied, might yet make them useful mediators in the cultural breakdown between consumers and high-street banks.
For sure, most of us would prefer to see a banking culture that offered confidence in the integrity of the system. But a full breakdown of confidence between consumers and banks would hardly benefit a flailing economy.
Change, not collapse. And competition can only help this along.
(I clearly didn’t get this memo!)