Tesco has struck a deal to sell the bulk of its banking business to Barclays for £700m in a deal that will include the transfer of about 2,800 staff to the bank.

Britain’s biggest supermarket group has agreed to sell its credit card, loans and savings operations to Barclays but will retain profitable elements of Tesco Bank, including its insurance, ATM, travel money and gift card operations. Tesco will receive £600m in proceeds from Barclays followed by a further £100m in net cash once regulatory and other costs associated with the transaction are settled.

Under the terms of a wider 10-year exclusive agreement, Barclays will sell Tesco-branded banking products and services, as well as utilising the Tesco Clubcard scheme. In return, Tesco will receive £50m in annual income from royalty, new account and Clubcard participation fees.

Ken Murphy, Tesco’s chief executive, said: “Tesco Bank is a strong business that has helped millions of loyal customers to manage their money for more than 25 years. As we look to the future, our aim is to be the best provider of financial services in the UK, with this strategic transaction and partnership with Barclays unlocking greater value for customers and for our business.

“The transaction will also significantly reduce our financial liabilities, in turn strengthening our balance sheet and allowing us to focus on continuing to grow our core retail business.”

Tesco said the deal to sell the banking assets would remove £7.7bn of “capital-intensive assets” and £6.7bn of financial liabilities from its balance sheet.

The retailer said the operating profit from its retained banking services, and the wider partnership with Barclays, was anticipated to be about £80m to £100m annually.

About 2,800 Tesco Bank staff, including the senior management team, will transfer to Barclays as part of the deal.

“This partnership with Tesco is a further demonstration of the investment we continue to make in our UK consumer business,” said CS Venkatakrishnan, the chief executive of Barclays. “We are looking forward to working closely with the team at Tesco over the coming months to enable a smooth transition and, subject to completion of the transaction, we look forward to welcoming Tesco Bank colleagues and customers to Barclays.”

Last month Sainsbury’s Bank opened the door to fresh takeover offers after the supermarket said it would exit the banking business almost 27 years after its launch.

The retailer is exploring a number of options for its bank – which offers savings accounts, credit cards, travel money and insurance – after a strategic review suggested it could be a distraction from a years-long overhaul, meant to bring the supermarket’s focus back to its core food and retail operations.

The Co-op sold off its final 1% stake in its bank in 2017. Troubles at the mutual’s financial arm almost led to the collapse of the Co-op before the bank was bought out in 2013 by a hedge fund.

Sainsbury’s and Tesco began offering insurance and other banking services as a way to gain further income from their regular clientele in the 1990s. Tesco bought out its banking partner in 2008 followed by Sainsbury’s in 2013 in order to gain more control over the operations with the idea that they could take on the major banks with superior customer service and a simple suite of products.

Many other retailers now offer financial services via partnerships. M&S launched its bank in 2013 in partnership with HSBC, founded on an existing financial services business set up more than 20 years earlier, while Asda’s financial services arm runs via a series of partnerships offering loans, a credit card and insurance.

John Lewis is attempting to build up its financial services arm, switching from a partnership on its credit card with HSBC to New Day in 2022, while it offers investment products with specialist Nutmeg, part of US lender JP Morgan.

However, retailers have struggled to compete in a market dominated by large operators such as Barclays and NatWest from which account holders are reluctant to switch. New regulation and the need for expensive IT upgrades and specialist staff has also put a squeeze on profits.