Silverburn, on the outskirts of Glasgow, is an unlikely setting for a banking revolution. The evocative name belies the fact that the sprawling out-of-town shopping centre sits beside Pollok, one of the city’s poorest housing estates.

The old shopping centre, which lies half demolished nearby, still houses the local credit union just a few yards from a gleaming Tesco Extra, where the supermarket giant has introduced its first in-store “bank”.

The pilot has gone well and the plan is eventually to roll out these in-store finance centres as Tesco moves to the next stage — taking on the high-street banks.

Tesco is in the final stages of concluding a £950m deal to buy Royal Bank of Scotland out of its successful 50-50 joint venture, Tesco Personal Finance (TPF). RBS’s need for cash has been well documented but Tesco says they were talking before the current financial crisis took hold.

Now, as RBS and others struggle, Tesco is hoping to offer a compelling alternative and, with 14m Clubcard holders to talk to, the possibilities look endless.

The man charged with the task knows more than most about his rivals and supermarket banking. TPF chief executive Benny Higgins headed the retail banking arms of both RBS and HBOS, as well as holding a senior role at Standard Life. He looked after Tesco Personal Finance when he was with RBS, and chaired Sainsbury’s Bank, the joint venture with HBOS. But with all that experience, is he sure it is wise to launch just as the rest of the banking industry is in turmoil?

“This is already a successful finance business,” he said. “We have 5m customers at TPF, 4% of the motor insurance market, almost 7% of the credit card market and an 11-year record of success.

“Nothing that’s happened would make our position less strong but we’re not looking at what anyone else is doing.”

The idea of combining the customer base of Tesco with the financial know-how of RBS was what attracted senior figures at the bank more than a decade ago.

Sainsbury’s followed suit, linking with Bank of Scotland, but initially made mistakes such as not putting information about its financial services at tills.

Tesco made no such errors. Its chief executive, Sir Terry Leahy, and outgoing RBS boss Sir Fred Goodwin are said to have discussed the future of the business a while ago.

“It was always going to need the focus of just one parent as it developed to the next stage and, given the strength of the Tesco brand, that was always going to be by Tesco,” said Higgins.

The grocery giant enjoys a 30% share of the supermarket sector, giving it access to a very big potential customer base. That dominance also brings huge responsibility.

The financial brand cannot undermine the grocery’s success. If Tesco’s banking customers were in financial trouble, for example, that could impact on its overall reputation.

Higgins, though, is adamant that won’t happen. “We will be a responsible lender focusing on rewarding loyalty,” he said.

He is now putting together the products that TPF will offer. Although he is looking to expand, he says that its traditionally cautious approach will remain.

“TPF could have done mortgages but until recently they were very unprofitable, so the risk versus reward was not great,” he said.

“It is only 18 months ago that mortgage lenders were providing loans of 100% or more and doing that on margins that were virtually non-existent.

“But now most borrowers are having to put in big deposits and margins are much healthier. There will be a period when banks are risk averse and until the current funding liquidity issues are resolved they won’t see as much activity in mortgages, but that will change.”

Higgins says he is evaluating the best way to offer current accounts and drops an enormous hint that, having seen the reward improve against risk, Tesco mortgages will soon be on the way.

“I think we will see a pretty active remortgage market as we go into the second quarter of next year,” he said. But he stresses that caution remains the watchword. “We will undoubtedly face a worsening economic environment. We have a duty to be a responsible lender and we will.”

Higgins says they will be transparent on pricing and is confident that Tesco enjoys an advantage from its ability to respond more quickly to customer needs than high-street rivals.

“It is something I have seen at first hand since joining. It is in Tesco’s DNA,” he said. “For example, we already have a pretty attractive savings rate, which is bringing in customers at an impressive rate, and that was a response to what our customers were telling us they were looking for.

“Customers also enjoy a physical presence in stores, so it is our aim to follow through on that. It is just a matter of putting together the right plan. If we need to have a private interview room, we have to be able to provide that. If we need certain expertise, it has to be available.”

Silverburn, however, is likely to be the first of many.

Tesco wants to earn £1 billion from non-supermarket activities within a decade and TPF, which contributed £200m of the £400m profit figure for last year, is expected to provide a big chunk of that. The targets look ambitious but Higgins cites Tesco’s opportunities here and abroad.

“We have 2,100 stores in the UK, 14m Clubcard holders, a strong internet presence and an international presence in 14 countries, with 28m customers outside the UK,” he said.

“We will be running a business focused on looking after customers in a sustainable way that rewards loyalty.”

The business, with about 200 staff, will be run from Scotland — a boost to the financial sector at a time when others are cutting back. However, Higgins says he will recruit the best people “no matter where they are”.

He has brought on board some former colleagues — “I have been recruiting a Premier Division team to supplement what was a very good team in the first place” — helped no doubt by the fallout elsewhere in the financial sector. Higgins, though, says he takes no pleasure in what is happening at his former employers.

“There was an enormous bubble brought about by a number of factors that ultimately allowed banks to place much bigger bets on the market,” he said.

“The banks have suffered, and partly it was their own doing, but I still have many friends there and take no pleasure in what is happening.

“I am still a huge admirer of Sir Fred Goodwin even though, with hindsight, RBS’s acquisition of ABN Amro was a Pyrrhic victory. But I also think the former building societies dug themselves into a deep hole because of their attitude to risk management.

“Going forward, risk management is going to be absolutely essential for us. This is about putting the Tesco in Tesco Personal Finance. Loyalty in financial services should be rewarded, not punished.”

Can Tesco truly make a difference? Three of its biggest rivals will have their attention diverted elsewhere over the next year or two as Lloyds TSB and HBOS link up and the new team at RBS unravels its own problems. That opens a window of opportunity and, while Higgins is emphatic his plans are not based on exploiting that situation, Tesco knows more than most that every little helps.

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