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Tesco looking to diversify

Tesco has decided to think outside the box by launching a stand-alone current account banking facility.

Tesco sign
Source: Bloomberg

The initial reaction to Tesco once again diversifying away from its core business of the UK food retail market might cause alarm, especially when you consider much of the fall in the perceived value of the company has come from a lack of attention to the UK market.

Arguably, moving into banking might not be a bad thing, as Tesco already has a thriving credit card business and currently account for 12% of the UK credit card market.

The last couple of years have seen the government vocally encourage competition for high street retail banking, as it has been keen to increase competition against the historic big five banks. The government has lightened regulations and encouraged banks to improve the transferability of accounts, which has cleared one of the barriers to entry in this sector. In an effort to encourage account transfers Tesco will be offering a 3% interest on account balances up to £3,000, however any account that does not have at least £750 deposited on a monthly basis will receive a £5 charge.

This could end up being one of the more adventurous but ultimately successful ventures that Tesco embark on, and the ability to cross sell to such a large percentage of the UK population could revert the shares current trajectory.

The shares have struggled of late but this might help change that trend. The first hurdle that needs to be cleared would be the 50-day moving average. This might not see results in the short term but could well be the driving force in the medium to long term.

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