Tesco bank has chosen an off-the-shelf core banking system from Fiserv as it moves towards being a full-service retail bank.
Tesco Bank already offers general, motor, home, pet and travel insurance, credit cards and personal loans, personal savings, and a network of cash machines. It has more than six million customers.
A core banking system will help it add services such as current accounts.
According to research from Celent, banks will face growing competition from non-bank financial service providers.
Celent expects "new players and new ways of doing business in terms of alternative banking systems to start sprouting up". These include retailers, phone companies and pre-paid card suppliers.
Tesco, like other non-bank financial service providers, hopes to take advantage of the poor reputation of banks during the recession.
Tesco is also aiming for turnover of £2bn a year from telecoms services after signing a deal with Cable & Wireless. The retailer will offer broadband and telephone packages with competitive pricing under the five-year deal with C&W.