Tesco plans to 'build a bank from scratch'

Tesco's financial services arm today announced it was keen to build a new bank that would not be tainted by loans provided by government bail-out schemes set up to save the collapse of the UK banking system last year.

The head of Tesco Finance - Andrew Higginson has said that Tesco will be "building a bank from scratch" and that remuneration would be keep it in line with its framework.

The supermarket plans a to make a dominant standing within the UK banking sector from 2010, offering its customers current accounts and mortgages for the first time.

In 2008, Tesco bought out RBS's 50% stake in Tesco Personal Finance (TPF) for £950m. Higginson said the new customer services centre, which was recently reported to begin operating next year, was a "significant step" towards supporting the bank to offer a full range of banking service. A further 500 former RBS employees are also expected to transfer to the new site in Glasgow.

Tesco plans to launch its new banking products in the second half of next year, after implementing a new IT infrastructure capable of supporting the bank, a project Higginson described as a "huge undertaking."

The chancellor, Alistair Darling welcomed the news of a new, potentially very strong player in the banking market: "We need more competition and that's something that we intend to encourage. The last couple of years has seen a significant reduction in the number of people, both from abroad and British-based banks, who are lending into the market," he said

Reports have been made that Tesco has shown interest in buying nationalised bank Northern Rock, but Higginson would not comment. He said Tesco would open branches within its supermarket stores rather than offering high street branches. Tesco currently has 3,000 cash machines throughout its UK stores.

Written by Sam Gooch