Tesco offers Visa card

The supermarkets group Tesco will this week launch its first Visa credit card, the first of a series of financial services products which are expected to include mortgages, personal loans and pensions by the end of the year.

The Visa card will be launched by Tesco Personal Finance, the joint venture into the financial services market established between Tesco and the Royal Bank of Scotland.

The company plans to build on the success of Tesco's "Clubcard Plus" combined loyalty and store credit card. The APR on the new card is said to be "highly competitive" with a reduced introductory rate. The launch coincides with the opening of a 24-hour call centre in Glasgow from which the services will be operated, employing 300.

Derek Sach, chief executive of Tesco Personal Finance, claims that by the end of the year there will be "further expansion into services such as current accounts, personal loans and mortgages." As the Royal Bank of Scotland owns Direct Line insurance, and Scottish Widows has a significant share in the bank, "insurance and pensions will also be on the agenda in the near future".

These moves follow on the heels of rival supermarket Sainsbury's, which became the first supermarket chain to obtain a banking licence in February through a joint venture with Bank of Scotland. The Sainsbury bank offers an Instant Access Savings Account with interest at 6.15 per cent, standard and gold Visa credit cards, a Christmas savings account and personal loans.

To date 300,000 such accounts have been opened, with total deposits of pounds 5m. According to a spokesperson for Sainsbury's, they also have plans for diversification into loans, mortgages, pensions and insurance.

Opinions vary as to whether supermarket banking poses a serious threat to traditional high street banks. Roger Miles, Head of Communications at the British Banking Association, suggested that such schemes represent "not so much a wholesale move of custom from the high street to the supermarket as a general move towards diversity of delivery."

The introduction of domestic financial services by food retailers is, he says, "nothing terribly surprising", and "the jury is still out on whether customers will actually embrace the possibility of taking out insurance, mortgages and loans along with their beans and pasta".

However, traditional high street banks do seem to be treating competition from food stores with caution. Tesco Personal Finance and Sainsbury's Bank keep overheads to a minimum by operating solely by telephone, and as a result are able to offer more competive interest rates than traditional banks.

NatWest's worries of undermining its own customer base caused a retreat from supporting Tesco's Clubcard Plus account. Banks will always welcome expansion in their retail delivery network unless it threatens to crowd its own field of view; this is testified by the fact that both Tesco Personal Finance and Sainsbury's Bank have had to look to the other end of the country for financial backing.