Virgin’s £12.3m acquisition of Church House, a small and relatively obscure lender based in Somerset, might not seem like a terribly momentous deal. But it’s a hugely significant one for Sir Richard Branson’s business empire: it effectively buys Virgin a retail banking license – and thus a platform to build a banking business that can challenge the big high street players. Branson is betting that the British public have become so disillusioned with the present incumbents that they’ll welcome a thrusting new entrant. But even if that’s true, is Virgin Bank the answer?
It’s no secret that Virgin has been looking to muscle in on the UK retail banking scene for some time. Branson tried unsuccessfully to snap up Northern Rock a couple of years ago, before it was eventually nationalised, and Virgin apparently applied for a banking license from the FSA last October. Church House is relatively tiny as banks go – it has a loan book of about £25m, and made about £450k in profit in 2008 – but the deal gives Virgin the banking license it needs to start taking deposits from customers and selling mortgages. So Virgin Money (soon to be Virgin Bank – the bit of the company that’s doing the deal, currently with about 2.5m customers) can use it as a base for a concerted push into the retail banking market. It may even start sniffing around what’s left of Northern Rock and RBS.
Virgin Money says its research has shown that recent events have left customers crying out for a new approach. ‘The financial crisis has tarnished the reputation of many UK banks. Virgin Money will provide a better, different form of banking to its customers,’ its CEO Jayne Anne Gadhia claimed today. ‘Our aim is to make 'everyone better off' in the way we do business by offering good value to customers, treating employees well, making a positive contribution to society and delivering a growing profit to shareholders.’ Fine words indeed (although to be honest, most of the big banks probably say the same thing).
Branson himself talked about his aim ‘to bring simplicity to…a complex sector’. Since Old Beardy isn’t exactly renowned for the clarity of his own financial arrangements (nobody has ever been able to untangle how and where he keeps his money), this might strike some people as a bit rich. But perhaps his biggest practical problem will be distribution. The suggestion is that there’ll be a big focus on online banking – but will this allow him to compete with the high street networks of the current players (Church House has no branches at all), or indeed that of the most notable new entrant to the sector, Tesco? The Virgin brand does have its adherents, but that will only get him so far (especially since some of his other ventures - notably Virgin Trains - have tarnished it somewhat).
On the other hand, if ever there was a time to take the plunge, this is it...
In today's bulletin:
Virgin launches retail banking push with Church House deal
Bernie Ecclestone wants to take the driving seat at Saab
Banks take control of ailing Foxtons
Is (a lack of) office politics hindering women's progress?
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