Barclays, one of the UK’s largest banks, is reportedly interested in acquiring Tesco Bank, the banking arm of the supermarket giant Tesco. The deal, if successful, would boost Barclays’ presence in the retail banking sector and help it compete with the rising fintech challengers.
Tesco Bank: A Potential Target for Barclays
Tesco Bank, which was launched in 1997 as a joint venture between Tesco and Royal Bank of Scotland, has been struggling in recent years due to low interest rates, increased competition, and regulatory pressures. In 2023, Tesco Bank announced that it would stop offering current accounts, mortgages, and travel money services, and focus on credit cards, loans, savings, and insurance products.
Tesco Bank has about 5 million customers and £9.1 billion in deposits, making it an attractive target for Barclays, which has been looking to expand its retail banking business and diversify its income sources. Barclays, which has about 24 million customers and £193 billion in deposits, is also facing challenges from the Covid-19 pandemic, Brexit, and the emergence of fintech rivals.
According to Sky News, Barclays has approached Tesco about a possible takeover of Tesco Bank, but no formal offer has been made yet. The deal could be worth around £1 billion, depending on the valuation of Tesco Bank’s assets and liabilities. Tesco, which has been focusing on its core grocery business and cutting costs, has not ruled out a sale of Tesco Bank, but has not confirmed any talks with Barclays either.
Fintech: A Disruptive Force in the Banking Industry
The potential deal between Barclays and Tesco Bank comes at a time when the banking industry is undergoing a major transformation due to the rise of fintech, or financial technology. Fintech refers to the use of digital platforms, software, and applications to provide financial services, such as payments, lending, investing, and insurance.
Fintech has been growing rapidly in the UK and around the world, thanks to the increasing adoption of smartphones, internet access, and cloud computing. According to KPMG, the global fintech market was worth $105.3 billion in 2023, up from $34.5 billion in 2017. The UK was the third-largest fintech market in the world, after the US and China, with $4.1 billion in fintech investments in 2023.
Fintech has been challenging the traditional banking model by offering faster, cheaper, and more convenient services to customers, especially the younger and tech-savvy ones. Fintech companies, such as Revolut, Monzo, Starling, and TransferWise, have been attracting millions of customers with their digital-only, app-based, and fee-free offerings. Fintech companies have also been innovating in areas such as peer-to-peer lending, crowdfunding, robo-advisory, and cryptocurrency.
Fintech has also been benefiting from the regulatory support and initiatives in the UK, such as the Open Banking framework, which allows customers to share their financial data and access a range of services from different providers. The UK government and regulators have also been promoting fintech as a key driver of economic growth, job creation, and financial inclusion.
Barclays: A Bank with a Fintech Strategy
Barclays, which was founded in 1690 and has a history of innovation, has been aware of the fintech threat and opportunity, and has been developing its own fintech strategy. Barclays has been investing in digital transformation, such as upgrading its online and mobile banking platforms, launching new products and features, such as contactless payments, biometric authentication, and voice banking, and partnering with fintech companies, such as PayPal, Apple Pay, and Zopa.
Barclays has also been supporting the fintech ecosystem, through initiatives such as Barclays Accelerator, a programme that provides mentorship, funding, and access to Barclays’ network to fintech startups, and Rise, a network of co-working spaces and events for fintech entrepreneurs and innovators. Barclays has also been involved in fintech research and advocacy, such as publishing reports, hosting conferences, and joining industry associations.
Barclays’ fintech strategy has been paying off, as the bank has been able to retain and attract customers, increase its revenues and profits, and improve its efficiency and resilience. According to Barclays’ annual report, the bank had 13.6 million active digital customers and 10.3 million active mobile customers in the UK in 2023, up from 12.9 million and 9.8 million in 2022, respectively. The bank also reported a 20% increase in income from its UK consumer banking and payments business, and a 10% reduction in its cost-to-income ratio, in 2023.
Barclays’ interest in Tesco Bank could be seen as part of its fintech strategy, as the bank seeks to expand its customer base, enhance its product portfolio, and leverage its data and technology capabilities. The deal could also help Barclays fend off the competition from the fintech challengers, as well as from the other big banks, such as HSBC, Lloyds, and NatWest, which have also been pursuing their own fintech strategies.