In the ring this week: Barclaycard vs. Tesco.

The credit card provider launched a new 0% 26-month balance transfer card just hours after the supermarket giant threw the first punch by announcing its 0% 25-month deal.

The rivalry between traditional providers and new entrants is nothing new; supermarkets have been expanding their financial product offerings for a while now and continue to pose a significant threat to high street banks.

Asda, Sainsbury’s, Co-op, M&S and Tesco all offer some form of product whether it be savings accounts, current accounts, home insurance or car insurance. You can even buy a will from some supermarkets.

Importantly, consumers appear to like the idea of buying their financial products from trusted supermarkets.

Research last year by comparison site uSwitch.com found a third (33%) of Brits would like to bank with a company which offers other useful services such as grocery shopping.

While high street banks are still working hard to regain customer trust after a string of disastrous headlines over bonuses, mis-selling and interest rate rigging, the supermarkets are unwavering in their pursuit of market share.

However, as well as a markedly cleaner reputation, the supermarkets also have another advantage over their rivals: they know their customers.

Tesco can tap into 16 million loyal Clubcard customers and get a clear insight into their shopping habits. As a result, it is gearing all of its financial products and services around what the customer wants.

Michael Ossei, a personal finance expert at uSwitch.com, says he wouldn’t be surprised to see Sainsbury’s Bank step up its credit card offering, using its base of Nectar customers.

Six years ago the longest 0% balance transfer offer lasted 12 months. Today, this has more than doubled, with Barclaycard becoming the first provider ever to launch a balance transfer card with an interest-free period of 26 months.

But is an arms race over rates the answer? Of course, better deals for consumers are welcome. But this one-upmanship with headline rates resembles children squabbling in the playground rather than big companies trying to do business.

Perhaps the banks should learn something from their rivals if they want to retain their foothold. They should spend more time understanding their customer base. Maybe then customers would be more inclined to visit a high street bank, especially if they knew they were going to get a tailor-made product from a highly experienced and qualified member of staff.

This week’s news reaffirms the high street banks won’t take competition from supermarkets lying down. They are ready for a fight.

But with supermarkets using data and customer insights to develop more appealing financial products for their customers, the battle might be tougher than they’d imagined.