Sainsbury Gains Full Control of Banking Operations

by Mercator Advisory Group 0

Sainsbury, one of the leading United Kingdom supermarket chains, announced it has reached an agreement with Lloyds Banking Group to acquire full control of its banking arm. The Sainsbury bank, which opened in 1997 as a joint venture between the supermarket and Lloyds, has five years of consecutive growth and made £59 million (US$91 million) in the past year.

Commenting on the move, Sainsbury’s chief executive Justin King highlighted the potential of the financial services offered by the supermarket by stating:

“We have 23 million transactions each week by customers who know and trust the Sainsbury’s brand. We see a great opportunity to increase the number of bank customers by offering accessible, high quality financial services products which reward customers who bank and shop with us. We expect the bank to become an important source of profit diversification and growth, building on the strengths of our core business.”

Customers using Sainsbury financial products should see almost no change in service as Sainsbury has a 42-month transition plan to move away from Lloyds’s banking and payment platform to that of United States-based FIS. While the costs of the transition, namely transition revenue costs of £170 million and transition capital expenditure of £90 million, will likely keep profits flat over the next few years, the move aims to capitalize on consumer discontent with the major British banks.

Sainsbury’s move to expand its financial services follows a general trend by non-traditional banking players to offer traditional banking products to consumers. The British banking landscape is undergoing significant changes. Regulators are trying to loosen the control of the big four banks and improve competition, and the aforementioned non-traditional banking players like Sainsbury and Virgin Money are trying to entice customers upset with major banks following a series of scandals since the global financial crisis.

While the success of the Sainsbury bank will be interesting to monitor moving forward, the supermarket has a credible chance of becoming a serious player in the British banking segment in the next few years given its established standing among local consumers.

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