Tesco sees finance as one of its main growth areas
Tesco is to make an aggressive push into the financial services market, seeking to transform itself into a fully-fledged retail bank.
The supermarket giant is buying the 50% stake that Royal Bank of Scotland (RBS) owns in Tesco's joint personal finance business for £950m.
Initially it plans to grow its share of products such as home insurance.
Looking forward, it will consider launching basic bank accounts in competition with High Street banks.
Banking on success
Tesco will promote financial services products, such as loans, savings accounts and insurance, more heavily in its stores as well as selling more business online.
Although it put no time frame on the possible launch of a basic current account, Tesco said it believed it was "well placed" to offer such a service although it has all but ruled out offering mortgages and corporate banking.
Were it to offer bank deposit facilities in its stores, it would need authorisation from the Financial Services Authority (FSA).
The expansion will be a direct challenge to the UK's leading High Street banks and insurance providers.
"Services are bigger and faster-growing markets than food," said Tesco chief executive Sir Terry Leahy. "As consumers look to make every pound work harder, it is a good time for Tesco to expand its presence.
"With a renewed focus on growth in the UK and internationally we can unlock the true potential of Tesco's retailing services."
In the eleven years since its launch, Tesco's personal finance business has been successful, making a £206m profit last year and signing up five million customers.
However, progress has been slower in recent times and Tesco's market share in key segments such as savings and home insurance remain small.
Following the purchase of the RBS stake, Tesco plans to overhaul the running of the Edinburgh-based business to drive its expansion.
Although it will be wholly owned by Tesco, the business will be run at arm's length and have an independent management structure to satisfy regulatory requirements.
Tesco has appointed two former RBS executives to manage the business.
TESCO FINANCE FIGURES
5.5 million customers
1.3 million credit card accounts, 390,000 savings accounts
6.9% share of credit card market
2,700 ATMs in Tesco stores
4.3% of car insurance market
They will report to Tesco's current finance director Andrew Higginson who will assume the new position of chief executive of retailing services - including telecoms and home shopping.
Tesco, which wants to double the amount of profits generated by financial services, telecoms and other non-store sales to £1bn in the next few years, will also recruit two non-executive directors to sit on the subsidiary's board.
Under an agreement between the two firms, Royal Bank will continue to provide services such as call centres, card issuing and back-office functions.
RBS expects to make an eventual £500m profit on the deal, which must be approved by the FSA.
The bank is currently looking to sell its UK insurance businesses having suffered large US-related credit losses and raised £12bn in a recent rights issue.
RBS chief Sir Fred Goodwin said the business was "strong and successful".
But he added: "At this stage of maturity it is appropriate for Tesco Personal Finance to move to single ownership for the next stage of growth."
Tesco moved aggressively into non-food sales several years ago, as its food sales growth began to slow, opening a handful of general merchandise stores.