Under pressure from the European Commission, last week Chancellor Alistair Darling unveiled plans to add three banks to the British high street by breaking off chunks of RBS and Lloyds Banking Group (LBG).
However, this may be easier said
than done. The UK's biggest banking brands, such as Barclays and NatWest, have been built by decades of marketing, while more recent additions HSBC and Santander were introduced with careful campaigns.
In Whitehall meeting rooms, it may have seemed like a good idea to call three banks into existence, but little thought appears to have gone into important details such as how these institutions will attract customers.
A Treasury spokesman admits that, although it is keen to see new entrants to the sector, the government will not be making any decision on the type of banking brands that will be launched.
To speed up the divestment process, RBS is dusting off its historic Williams & Glyn's brand after 24 years on the shelf, while LBG is separating the old Trustee Savings Bank (TSB) brand, 14 years after it merged with Lloyds. The government is also keen to find a buyer for Northern Rock's ‘good bank', freshly stripped of the toxic assets that caused its downfall in 2007.
Two names mentioned as possible bidders are Tesco and Virgin Money, and the latter is already in the process of applying for a banking licence. Tesco has also set about expanding its presence in financial services, launching Tesco Bank booths in Tesco Extra stores. Both will want to reach out to younger consumers left disillusioned after last year's banking crisis.
Director of marketing and customer insight at the Identity and Passport Service Alan Gilmour, who has previously worked for TSB, Lloyds TSB and Heritable Bank, suggests Tesco and Virgin will stand a much better chance than less familiar entrants.
‘Established brand names with a demonstrated customer focus are starting from a much better place, while it would be much harder for a start-up,' he says.
Gilmour also warns little-known foreign brands, such as Allianz, Zurich and Generali, to think twice before entering a market characterised by mistrust and scepticism.
However, not everyone agrees that supermarkets can make a successful transition to high-street banking. ‘Retailers know what does and doesn't work, but they have never run banks,' says Keith Moor, Santander's UK brand and communications director. ‘Take Andy Hornby at HBOS. He was hugely successful at Argos, but it is not easy to adapt retail principles into banking.
‘It will also be tough to get up to scale,' he adds. ‘Abbey had over 700 branches and that was sub-optimal. What customers need for full-service banking is accessibility. Alliance & Leicester was a good business, but even it couldn't survive.'
Tom Knox, chief executive at DLKW, which holds the ad account for LBG-owned Halifax, believes retailers will need to adopt an approach to suit the seriousness of banking. ‘Tesco's relationship with consumers is different to the relationship a bank has with its customers,' he says. ‘It is less frequent but much more important, and so established players will continue to do well.'
According to Joe Petyan, joint managing director of JWT London, the biggest issues for companies wishing to join this market will be ‘building trust' and ‘making sure existing brand equities are appropriate to the sector'.
The chancellor may be confident about launching three banking brands, but with faith in the sector at an all-time low, many potential buyers will think twice before taking that risk.