By Marcus Leach

Freddie McMahon, Head of Innovations at FusionExperience, believes that Tesco is on course for a showdown with Britain's banks as the retail giant made growing its financial services unit a top priority.

Tesco's move to prioritise financial services and set the course for a showdown with Britain's bank comes as little surprise. The high street banking market has been revolutionised by new entrants over the last five years.

With the consumer losing faith and growing numbers increasingly frustrated in traditional banks, companies such as Tesco, Sainsbury, NBNK and Virgin Money have used their extensive experience with managing customers, along with their vast databases to provide a new form of customer experience.

Alongside this, Metro Bank and Co-operative Financial Services have merged the traditional banking ethos with a very modern form of customer interaction and experience, be it face to face, using the social media or heavily investing in digital portals for ease of access.

The Co-Op for example reported that its revenue was up by 23.6 per cent to £2.5 billion, creating an underlying operating profit of £208.6m - up by 17.7 per cent on the previous year. During 2010 there was also a 79 per cent increase in current account switchers to the Co-operative Bank.

The top 10 per cent of big corporates that excel in customer experience all have loyalty cards and customer involvement programs and there is no coincidence that all the competitors to the established banks do so as well.

These new entrants have realised that customer experience holds the key to expansion and high street customer retention. From the Saturday opening times of Tesco bank to the dog food available in Metro Bank, these companies have gone so far ahead in appealing to customers that established banks will struggle to catch up. Philip Clarke laid down a gauntlet to the banks, and these need to react now, or face losing the battle.