Coles builds a team to establish financial services in empire expansion

Eli Greenblat and Eric Johnston
June 12, 2014
The Age
Coles has pulled together a high-level strategy team to develop its burgeoning financial services arm, with an eye to offering banking services to better bind customers to its stores and boost grocery sales.
The team have been meeting in a sealed-off section of Coles’ Melbourne headquarters where their confidential discussions are quarantined from other staff in the building’s open-plan office.
Early work on the project has seen Coles trademark last month the brand ”Coles mobile wallet”, setting the retailer up to break into the high-growth digital payments space that many experts believe will be the future of financial transactions as mobile phones replace wallets.
It builds on a growing pile of trademarks reserved by Coles such as ”Coles Money”, ”Coles Financial Solutions” and ”Coles Financial Group”.
Since Wesfarmers bought Coles in 2007, it has steadily rolled out a suite of financial services. These include credit cards and car insurance, with Coles Insurance one of Australia’s fastest-growing insurers.
The moves reflect a global trend of retailers pushing into banking. In Britain, Tesco, Sainsbury, and Marks & Spencer take deposits and sell personal loans, while Canada’s largest food retailer, Loblaw, provides personal loans, credit cards and mortgages.
Woolworths, which sells insurance, has been toying with the idea of expanding further into financial services, although it has had mixed success following last decade’s Ezy Banking joint venture with Commonwealth Bank.
A spokesman for Coles declined to comment on its banking plans.
Last month Coles’ new managing director, John Durkan, revealed the supermarket would next move into life insurance.
Coles recently launched the first Australian consumer trial of contactless payment technology PayTag, which allows shoppers to ”tap and pay” for groceries using an encoded sticker on the back of a mobile phone.
Mr Durkan said that he wanted to ”boldly extend into new channels and services” and this is believed to include Coles’ blossoming financial services operation and a plan to ultimately house its various offerings under some form of united ”Coles Bank” unit.
Research has shown shoppers tend to spend more on food and groceries if they are also financial services customers of the supermarket.
Indeed, some Coles executives believe it can take on the ”big four banks” at their own game, leveraging its network of 762 stores to reach out to the millions of customers that shop with it each week.
Industry sources told BusinessDay that Coles was looking at a range of options to expand its financial services arm, including alternative structures, but that no decisions had been made.
Fairfax Media reported last year that Coles was pursuing a banking licence from the Australian Prudential Regulation Authority to allow it to take deposits. Banking sources have said this process can take years.
In a telling submission to the Financial System Inquiry headed by former CBA boss David Murray, Coles said retailers could drive innovation, competition and greater consumer choice in the sector.
The Coles submission also highlighted the long history of British retailers providing financial services, citing food retailers Tesco and Sainsbury’s as well as Marks & Spencer that have set up personal finance arms or banks.
”These retailer banks, while still small in national banking terms, have extended their market shares and range of banking products in recent years,” the Coles submission reads.
”While their offerings are more limited than the full banking services offered by major clearing banks, their offerings are nonetheless more extensive than those currently offered by Australian retailers.”
Its submission also warned a recent shift by regulators since the GFC has seen financial resilience and stability prioritised over a more competitive environment supportive of new entrants.
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