The financial services arm of Richard Branson's empire will also pump £37.3 million of new capital into Yeovil-based Church House Trust, which reported operating income of £4.05 million and profit before tax of £0.45 million for the year ended 31 December 2008.

Virgin Money already claims over 2.5 million customers, offering credit cards, personal loans, savings products and insurance but has long sought to take on the high street banks with a full retail offering and failed in a bid two years ago to buy Northern Rock.

It will now use Church House Trust as a platform to offer products such as deposit accounts and mortgages under the Virgin Money brand. The group is expected to initially focus its efforts online but could later develop a high street presence, possibly via an acquisition.

Jayne-Anne Gadhia, chief executive, Virgin Money, says the acquisition is a "strong and sensible first step in delivering Virgin Money's banking ambition" as it seeks to take advantage of public disillusionment with traditional lenders.

"The financial crisis has tarnished the reputation of many UK banks. Virgin Money will provide a better, different form of banking to its customers, increasing competition in the sector," says Gadhia.

Branson adds: "The Church House Trust business offers us a strong platform for growth. Virgin Money aims to bring simplicity to the UK banking market which has traditionally been a complex sector."

Virgin Money's application to take over Church House Trust, has already been green-lighted by the Financial Services Authority (FSA).

Branson is not the only player to heed the UK government's call for new entrants into the retail banking market. Retail giant Tesco recently rebranded its personal finance unit Tesco Bank "in recognition of our longer-term objective of creating a full-service retail bank".