Virgin plans Internet bank

Virgin Money is planning to launch a UK Internet bank in a bid to take advantage of public anger at traditional high street outfits, according to the Observer newspaper.

The financial services arm of Richard Branson's empire is preparing to apply to the Financial Services Authority for a banking licence that would allow it to take deposits and offer mortgages.

Virgin Money was launched in 1995 and claims over two million UK customers, offering credit cards, personal loans, savings products and insurance. Sales rose from around £70 million to £100 million in 2008 with profits estimated at £30 million.

The unit is now looking to follow the lead of Tesco and push much further into financial services, taking advantage of public anger at traditional banks.

Tesco bought out RBS to take complete control of Tesco Personal Finance in December and plans to open 30 bank branches in its stores by the end of the year. Another retailer, Boots is also considering following Tesco's lead.

The Observer says Branson is now in discussions with US investment banks over financial backing and is also talking to advisers about a new bid for failed bank Northern Rock.

Branson is said to be considering three options: launching a new bank with a branch network; teaming up with another finance firm; or joining a consortium to buy a troubled bank like Northern Rock.

Branson plans launch of Virgin internet bank - The Observer

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Comments: (2)

A Finextra member 20 May, 2009, 20:44

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The fact that Virgin is now following Tesco's footsteps into the retail banking space and taking advantage of consumer suspicion of banks highlights just how much financial institutions need to go back to basics to retain their customers. Tesco has already seen a doubling of customer deposits in recent months as distrusting consumers move away from the troubled banking sector and with more well known names like Virgin coming onto the scene, banks could be facing a real problem in persuading customers to stay loyal.

As a result, fostering a one-to-one relationship with each customer and rebuilding trust is something banks should now be focusing on. Of course, building one-to-one relationships can't come at the expense of profitability, especially in the current climate. Ideally, every decision a bank makes with regard to a customer should cater to that individual's specific needs but do so in a manner that ensures the profitability of the account. Gaining full understanding of each customer as an individual, including their likely behaviour, and applying that to every interaction is not only critical for differentiation and loyalty in these challenging times, but it may be the key to survival amid increasing competition.

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A Finextra member 22 May, 2009, 13:03

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That Virgin Money, like Tesco, is looking to capitalise on current public dissatisfaction with traditional high street banks will come as a further blow to the sector. Consumer confidence in financial institutions is already at a low but mounting competition from more trusted, big brand names could finally give customers a reason to switch banking providers. One way banks can prevent this from happening is by taking advantage of the growth in online banking usage. Evidence shows that online banking is becoming increasingly popular with consumers, with over two thirds (68%) of customers surveyed by Callataÿ & Wouters using this channel to manage their main account. From the banks' perspective, the direct savings banking model in particular allows customers to be self-directed, meaning banks can minimise overheads during these tough times whilst meeting customers' needs, such as more competitive rates. In a period when cost-savings are so important, the internet could prove to be the most reliable channel to retain customers and compete with new and unlikely entrants into the market.