Tesco takes on banking giants with current account launch

File photo of a Tesco supermarket in Ashby De La Zouch, Leicestershire. Credit: Rui Vieira/PA Wire

How much interest are you earning on your current account?

I ask because Tesco Bank is launching its first current account service based on the following assumptions: 1) it's close to absolute zero, 2) you probably don't realise this yet and 3) when you do, you'll switch.

One of the great mysteries of recent years is that the big banks have managed to treat their customers pretty shabbily and hang onto them.

The assumption was that we were all too fearful of the potential disruption of changing who we bank with. However, the seven day switch guarantee was introduced last September and, while the number of people moving has risen, there's not exactly been a stampede.

Of course the bigger banks will tell you that switching rates are low because, generally speaking, we are happy with the service we are getting.

Tesco Bank has a slightly different perspective. Benny Higgins, its chief executive, has run previously run the retail operations of both Royal Bank of Scotland and Halifax Bank of Scotland. His view is that there is a problem but it's not fear or a lack of choice, it's a lack of transparency.

Mr Higgins accuses his rivals of using "smoke and mirrors" to disguise the fact that 80% of their current accounts pay no interest on in credit balances. The bank is earning money, customers are not and are none the wiser.

Tesco's pitch is that people think all banks are the same and it will pick up customers by offering them something different. How often have we heard that before?

Before you scoff though, Tesco Bank's pledges on interest (it will pay 3% on all in credit balances) overdraft fees (a maximum charge of £5 for for any unauthorised borrowing) and account charges (anyone paying in less than £750 a month will be charged a fee of £5) have won something that sounds like gentle applause from consumer groups.

Moneyfacts praises Tesco's sense of fair play. Which? say the above amount to "serious competition" - this from an organisation which in April called for the big banks to be subjected to the same competition investigation as the big energy companies.

Tesco Bank already offers insurance, savings and loans (including mortgages) to 7 million people and it has previous when it comes to muscling established players off the ball; £1 billion a month is spent on its credit cards; that's one in eight transactions, only Barclaycard is bigger.

A £1 billion a month is spent on Tesco's credit cards. Credit: Chris Radburn/PA Wire

Tesco's supermarket business has 16 million Clubcard holders. Tesco Bank's swagger suddenly disappears when you ask it how many of them it thinks it can persuade to open a current account but the potential for disruption is there.