The British banking industry has taken a few hard knocks in recent years, with many consumers unwilling to trust those institutions that have made it through the crisis. One such institution that nearly did not survive is the building society Northern Rock, which was recently bought by the Virgin supremo Sir Richard Branson. Branson now intends to use his foothold in the financial services industry, and the appeal of his Virgin brand name, to create a new kind of bank.
Of course, this isn’t Sir Richard or Virgin’s first venture into the murky world of finance. Virgin already offers a popular and successful managed fund as well as personal finance products such as credit cards. However, there are only 200,000 of those Virgin credit cards in circulation; a mere drop in the ocean when it comes to the UK-wide banking industry.
Even though Branson is undoubtedly an excellent businessman, with more successes than failures behind him, that does not mean that the Virgin brand cannot fail. More established names than Virgin have attempted to branch out into new markets in the past only to find that they are unable to penetrate whatever industry they have set their sights on.
Virgin has already recorded a number of misses in the personal finance sector; hardly inspiring confidence in Branson’s efforts to take on the major banks. The Virgin Index Tracker fund was launched with a huge fanfare, charging just 1% in an industry where fees of 5% were considered good value for money.
Unfortunately, those who rushed to take advantage of the deal have seen little to cheer about besides the low charges, with the Index Tracker remaining stubbornly at 160% while the FTSE All Share Index has risen to 220%. Market experts, as well as those with a vested interest in Northern Rock, the shareholders and investors, are concerned that banking is just the latest in a long line of new obsessions for Sir Richard and that his heart is not really in the venture.
The business only cost him £747 million, compared to the £1.4 billion that the UK taxpayers had to shell out to save Northern Rock, which means that Branson can afford to play around with his new toy without being too concerned about making losses or profits.
The old Northern Rock branches have already been given a Virgin-style makeover, complete with the ubiquitous flashy red colour scheme. Experts are predicting that the “new” bank will enjoy some success, at least in the short-term, with Branson expected to draw on all his skills as a marketer in promoting the new products and accounts.
Cash incentives for opening new accounts have already proven popular at other financial institutions, such as the Co-Operative and Santander, and this is likely to be one of the tools that Virgin employs to win customers from the High Street banks.
The worry is that Branson is not planning to stay around for the long-haul; a previous foray into the financial services sector ended with a sale to Royal Bank of Scotland. This means that customers who think they are signing up for something different when they open a Virgin account could end up with just the same old bank after all.