Great timing, but is Asda's credit card on the money?

It was only ever going to be a question of when not if. Indeed, as Asda launched its credit card this week, the only surprise was that it had taken so long.

Kirsty Ward, head of Asda Money, claims the new Asda Money Credit Card reflects the retailer’s ethos - “transparency, simplicity and great products at low prices.” But how will the scheme work, why has Asda launched it now and what are its rivals offering to compete?

Asda’s launch couldn’t have been better timed, with leading finance institutions embroiled in yet another scandal, this time around Libor rates. “We can see that customers are looking for alternative providers,” says Ward, “especially those who demystify products and services.”

Cashback
The new card has an APR of 14.9%, lower than rival retailer reward cards (see box), but perhaps more significantly, gives customers 1% unlimited cashback on Asda shopping and Asda fuel - as opposed to the points-based offers of its established rivals. The cashback is redeemed monthly and has no thresholds. “It’s not capped - it’s 1% everywhere in Asda, including petrol,” says Ward.

It’s not just Asda ramping up its financial services offer. M&S announced last month it was opening an in-branch banking service at Marble Arch with plans to open 50 more in the next two years, while Tesco, after some delay, is set to offer mortgages and current accounts for the first time in 2013.

Analysts, however, express reservations about the strength of grocery retailers’ offer. “It would take some time and considerable capital for M&S, Sainsbury’s or Asda to have a meaningful financial services business,” says Shore Capital analyst Clive Black. “A lot of what they are doing is relatively low risk. They tend to be fronting products that banks are underpinning and against the size of the business they’re running it will be some time, if ever, before they are a meaningful part of their proposition.”

It’s a view shared by Philip Dorgan, investment analyst at Panmure Gordon. “M&S, Sainsbury’s and Tesco all have financial arms and for the most part it has been peripheral, although Tesco could be about to see lift-off,” he says.

Black has more faith in Tesco because it is so far ahead. “Tesco entered the financial services market 15 years ago, and three and a half years ago it bought out the Royal Bank of Scotland stake,” says Black.

“It’s taken that amount of time to create a fully fledged infrastructure to support an insurance and banking business and Tesco still doesn’t have mortgages and current accounts, so that gives you a feel for the amount of time, capital and capability one needs to have a meaningful financial services business as opposed to something merely bolted on to a retail proposition.”

Still, you’ve got to start somewhere. And offering cashback, it’s a loyalty card on the cheap, isn’t it?