Tesco Bank in Disarray

Tesco has great hopes for its Banking division but right now things are going badly, with the company scrapping its Tesco World MasterCard credit card to new applicants.

Things are not going so well at the self-styled People's Bank.

This withdrawal of the card comes after the grocer only recently upgraded upwards of one million Tesco Visa cardholders onto the new card in a shambolic move that coincided with many of its cardholders applying for Olympic tickets.

Although this move rankled with consumers who have had to amend their applications, as their card numbers have changed, the big issue for Tesco - and the reason for the axing of the card - is the high transaction charges attached to the new card.

Retailinsider.com highlighted the high fees faced by retailers when they accept the Tesco credit cards in a previous post (in March) and how the World MasterCard variant was especially onerous to merchants. But what we hadn't foreseen was the impact these charges would have on Tesco's own business.

Getting Olympics tickets proves even harder for Tesco cardholders.

Purchases made in Tesco's stores by customers using the grocer's own World MasterCard have eaten into the profitability of the group's core supermarkets business. Meanwhile these profits have shifted across the group's balance sheet into Tesco Bank.

This has gone down very badly in the company and done the reputation of the head of Tesco Services division Andy Higginson no favours whatsoever.

Higginson: Loss of credibility.

It is understood that senior Tesco directors were less than impressed with the impact the new premium cards (with their higher transaction charges) were having on the UK supermarkets' performance. It looks to have been a case of them demanding the money back from the banking division.

The news that Tesco has scrapped its World MasterCard and is now restricting new applicants for a Tesco credit card to just the standard MasterCard will have come as a big relief to many other retailers who have been affected badly by the emergence of these higher transaction charge cards.

These retailers must now be thanking Tesco for its change in policy and hope that other store groups like Marks & Spencer who are issuing World MasterCard's will see sense and follow suit.