Retailer Banks the Future of Retail Banking ?

Less than twenty years ago there was a clear-cut borderline between retailing and banking, but after the deregulation of the financial markets this line is not as evident and definite any longer. In combination with far-reaching innovations and advancements within the field of information technology the deregulation has paved the way for the development and launching of new banking formats. This has been apprehended by retail firms that wish to provide financial services as a supplement to their regular assortment of goods – an interest that is growing among retail firms in general and among large grocery retail firms in particular. Consequently, the traditional boundary between the two industries has gradually changed and to some extent been dissolved. That this is especially true for the distinction between grocery retailing and retail banking is accentuated and clearly demonstrated in many countries by the entrance of large domestic grocery retail firms into retail financial services. In many cases the retailer accomplishes the provision of financial services by co-operating with an established bank in the form of a strategic alliance, but there are also recent examples of retailers starting a bank of their own. In either case a leading idea is to gain from economies of scope by utilising the existing network of stores of the retailer instead of ordinary bank branches. For retailers the provision of financial services may also be a way to increase customer loyalty. From a relationship perspective retail customers are, for instance, likely to be attracted by the opportunity to withdraw or deposit money when shopping. However, the picture looks different and less attractive for the established retail banks. For them the entrance of retailers into financial services may be rather distressing. In the case the retailer chooses to open a bank of its own a new cost efficient competitor is born, but even in the case the retailer desires to co-operate with the bank the risk of loosing customers due to ‘cannibalism’ is imminent. Hence, even though the established banks still have a dominating role in the retail banking market, the new entrants are definitely challenging their leading position. The question is whether retailer banks will be the future of retail banking. This question is further elaborated and analysed in this paper within a relationship framework. Special emphasis is thereby put on recent experiences from the development in the UK and Sweden. -------------------------------------------------------*) Working paper – preliminary draft: Comments are welcome! The author wishes to thank Handelns Forskningsstiftelse i Göteborg and Stiftelsen Richard C. Malmstens Minne for financial support.