Virgin gets serious about banking7th February 2012
Glossy adverts, a new and instantly identifiable moniker, a 40-year track record and a commitment to excellence – can Virgin Money live up to all the hype? The newest kid on the financial block has re-launched itself onto the high street banking market, with a charter committed to ‘better banking’ (whatever that may mean).
But watchers are wondering whether Branson’s golden touch can really work in this overpopulated market, and if Virgin Money can avoid the mistakes of its main rivals.
Since Virgin took over the beleaguered Northern Rock at a cost of £1billion, we’ve all been waiting to see exactly what Richard Branson could bring to the table, and whether he could bring a flourish of ‘Virgin style’ to British banking.
The PR and rhetoric has started well though, with a commitment by the group to put the customer and not the interests of shareholders and balance sheets first. I wonder how the investors who’ve just lent Virgin £1bn to develop the business and buy Northern Rock feel about that.
‘Genuinely caring about you and your money’
In 2011 there were over 57,000 complaints about banks to the Financial Ombudsman. The bad news for the big high street names is that number is set to rise to over 71,000 by March 2013. To avoid becoming part of those lamentable statistics, Virgin Money is going to have to be rigorous in how it delivers its service to customers. Everything from how customers are treated in-store through to total transparency and avoiding overcharging for products and services is going to be key to their success.
Size-wise, Virgin Money is up against it. Their new high street network only has a total of 75 branches across the country, compared to the 9,300 that the big five have currently. However, with a closure rate of three a week, that number is dropping. Size really does matter for customers, and with such a tiny, thinly spread network Virgin Money could risk leaving customers disenfranchised simply because it’s logistically difficult to get to a branch.
However, the current high street banking environment is stifled with many well known names all offering products and services that hardly differ between brands, and this is where Branson will shake things up.
What products are on offer?
One thing that has shaken the British public’s confidence in banks more than almost anything else is the mis-selling of products, or products that are simply worthless to the average consumer. Payment Protection Insurance (PPI) in particular springs to mind. This financial albatross has cost the big banks a colossal £7.4billion in compensation for mis-sold PPIs (read our comprehensive PPI Mis-selling Guide with news and information on how to claim compensation if you’ve been mis-sold) .
If Virgin Money is to succeed where others have failed, then their product range has to be what customers want, not what looks good on the balance sheets or at the shareholder’s meetings. (Review the Virgin Credit Cards compared.)
Avoid the ‘fat cat’ syndrome
While mis-selling of PPIs may have shaken confidence, the thing that makes ordinary banking customers really froth at the mouth is the obscene amounts of profit and ludicrously large bonuses that the banking sector likes to pay its ‘top people’, with bonuses often still being paid despite waves of financial scandals.
Barclays, with an 18% rise in profits in the nine months to September 2011, was fined over £7million and ordered to repay £60million in compensation for mis-selling investments. Bonuses, despite the Chancellor’s lackluster attempt to claw some money back with the one-off 25% taxation on payouts, regularly hit six and even seven figures.
If Virgin wants to avoid getting tarred with the same brush, they will have to be seen to have a more ethical approach to their banking, in the same way that the stalwart of fair banking, The Co-Operative Bank, has. While they’ve promised to ‘use our expertise with money to do some good in the world’, they’ll need to define exactly what that means. And then make sure that they follow through their good intentions and lofty rhetoric with real action.
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