Virgin Money for the first time now has a banking licence, having bought an obscure regional bank, Church House Trust. From this small start Virgin intends to become a major player in the banking industry across the UK – exploiting the widespread disillusion in the big banks.
But this is merely the playing out of a very long term ambition for Virgin. It was way back in 1996 that Rowan Gormley – founding chief executive of Virgin Money – told me they wanted to become a bank. The story made the lead in the Sunday Times business section that week, but it has taken 14 years to become a reality!
Initially Virgin Money’s assault on the banking market through the Church House licence will be low key. It may be next year before it offers current accounts and will initially focus on savings accounts, from which it will fund its own mortgages. “We have a conservative banking model… and won’t be looking for finance from the wholesale markets,” explains Scott Mowbray of Virgin Money.
Part of the main objective of Virgin Money, though, is to make a much bigger acquisition than Church House. It wants to buy either Northern Rock or part of the Royal Bank of Scotland branch network – though it plans to call its branches ‘shops’ to distinguish itself from traditional banks.
For the time being, the Virgin Money bank will focus on selling through the internet and over the phone, as it already does to 2.5 million customers of credit cards, investments and other financial products.
But Virgin Money is not the only new brand name that could be popping-up over bank branches in Northern Ireland (or Belfast anyway, in the case of Virgin Money, if it acquires Northern Rock). Santander has already become a new high street bank, this month rebranding its Abbey and Bradford & Bingley branches: it will rebrand its Alliance & Leicester branches later this year.
Santander is much more than a different name for Abbey. Rather Santander is one of the world’s biggest banks – based in Spain and with a major presence in Latin America – and which through careful management has apparently avoided serious damage from the financial crisis.
Existing Abbey customers are now entitled to free access to Santander cash machines in Spain. Santander has also launched its ‘Zero’ current account – available only to its mortgage customers – promising no overdraft charges (even for unauthorised overdrafts), no charges for paid or unpaid items, no charges for using ATMs worldwide or foreign exchange fees, fee-free debit card use for purchases worldwide and a very competitive overdraft rate of 12.9%. It also pays 6% interest on credit balances.
Hello Tesco Bank
The Tesco Bank is another new big name in banking. In October Tesco Personal Finance became Tesco Bank, reflecting its aim to become a major bank in its own right – operating online, by phone and through its stores. It already claims over six million customer accounts and a range of 28 financial products.
Tesco has experimented by opening branches in a few stores: it will decide soon whether to open more. The scope of its ambitions, and the speed with which it intends to achieve them, can be judged by its head office staffing almost doubling in the last year and its plans now for a big increase in back office employment. Tesco has significant market penetration with some of its products: it boasts that one in ten UK credit card transactions is now conducted on a Tesco card.
Sainsbury’s is another existing brand muscling-in on banking. It recently launched an attractive online savings account, paying 3% – compared to the 0.50% current base rate. However, Sainsbury’s Bank is in a more difficult position than the other ‘newcomers’. Sainsbury’s, Tesco and Marks & Spencer’s all entered the financial services market through joint ventures with major banks, but while Tesco has bought out its partner ( RBS), Sainsbury’s remains involved in a 50/50 joint venture with Lloyds. (Marks & Spencer was bought-out by its partner, HSBC.)
In other ways, too, Sainsbury’s is not taking the same approach as Tesco. A spokesman says: “We have a different vision of where we want to go. Tesco wants to compete with the high street banks.” The company’s main focus is on selling financial products to existing supermarket customers, aided by incentives from additional Nectar loyalty points.
Virgin, Santander, Tesco and Sainsbury’s are all big name brands now competing against the established banking brands in Northern Ireland and Great Britain. They are not, though, alone and other new banks are also entering the market. Additional competition should be good news for consumers – let’s hope it really is.
Q. Last week you explained that people receiving some benefits are entitled to cold weather payments. One of those benefits was state pension credit. Is that the same as the state pension?
A. No. Pension credits are payable to people in receipt of state pensions who do not have additional large incomes or savings. The eligibility criteria are complex: further information is available at www.dsdni.gov.uk. Citizens’ advice bureaux and the Government’s money advice line – Advice4DebtNI, 0800 9174607 – can provide assistance with applications. Cold weather payments have different criteria from winter fuel payments, which, like the state pension, is not means-tested.