Sainsbury's to exit core banking business

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J Sainsbury plans to withdraw from financial services and offload its core banking business to other providers as the British supermarket turns its focus back on retail following a strategic review of the business.

Sainsbury’s said on Thursday it was planning a “phased withdrawal” from Sainsbury’s Bank, the lender it fully owns, to instead provide financial services via third parties through a “distributed model”.

A person familiar with the plans said this would affect its credit cards, store cards, loans, savings account as well as the Argos store card.

Many British retailers including Marks and Spencer, John Lewis and Tesco, entered financial services in the 1990s, at a time of strong lending growth. But fierce competition in the savings and mortgage markets because of rising interest rates has fuelled a wave of mergers and acquisitions speculation about small and medium banks that struggle to compete with their larger peers.

Sainsbury’s announcement follows reports that rival lender Tesco Bank is looking for a buyer, while the Co-operative Bank last month entered exclusive talks to merge with the Coventry Building Society.

The supermarket’s plan would allow it to offload the bank from its balance sheet while letting another provider — or providers — operate it under the same brand, a process that the person said was akin to “white labelling”.

“We already do this successfully with our insurance products,” the supermarket chain said in a statement on Thursday. “Over time, this will result in a phased withdrawal from our core banking business.”

Benjamin Toms, an analyst at RBC Capital Markets said the announcement was “further evidence” that the UK retail banking sector was “a tough environment” for lenders that lacked scale and did not specialise in niche services.

Simon Roberts, chief executive of Sainsbury’s, said: “We have been clear since we launched our Food First strategy in 2020 that we would concentrate our efforts on our core retail businesses and today’s announcement reflects that strategic focus.”

Sainsbury’s also said Robert Mulhall, a former executive at Allied Irish Bank, would replace Jim Brown as chief executive of the supermarket’s bank at the end of March.

The retailer had previously explored a sale of its banking arm in 2020 as ultra-low interest rates put pressure on its profitability. Sainsbury’s concluded that a deal would be of no benefit to shareholders the following year, however.

Sainsbury’s Bank operates 1,350 cash machines and 225 travel money bureaus in its supermarket stores across the UK. The grocer said its services and products would not immediately be affected by the announcement. Roberts said it was “business as usual for now at Sainsbury’s Bank”.