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Can Virgin Money’s charter alter the banking landscape?

Virgin Money has taken the next step in its journey to the high street. Its charter lays out a quest for better banking, but can Virgin Money avoid the mistakes made by its high street competitors?

Since Virgin’s £1bn takeover of Northern Rock, everyone’s been waiting for Richard Branson’s statement of intent. How exactly was he going to bring a touch of his ‘Virgin style’ to British banking?

Yesterday Virgin Money laid out how it’s going to pursue a better banking environment for its customers. Seemingly, it wants to show that it will put you, and not the interests of its shareholders and balance sheet, first. A lofty ambition you might think, but a wholly necessary change given the mess banks have left us in.

Below is Virgin Money’s charter for banking. It’s an admirable set of goals, but there are some dangerous traps to avoid if it wants to truly change the landscape of Britain’s banking industry.

‘Genuinely caring about you and your money’

Over the years banks have mistreated their customers, eroding trust and undermining confidence that banks are managing your money with your best interests in mind. There were over 57,000 banking complaints recorded by the Financial Ombudsman last year, and this is forecast to rise to 71,000 by March next year.

Virgin Money must closely monitor how its products are sold, how its staff deal with its customers and make sure that staff are incentivised to deliver good outcomes for customers, and not for making profits for itself.

‘Putting customer service ahead of cost-cutting’

Virgin’s new high street network consists of 75 branches. That’s pretty slim pickings compared to the dominant five banks, which collectively have 9,300 branches between them.

Still, banks have also been said to be closing three branches a week. This may not be Virgin Money’s problem now, but a diminishing branch network risks disenfranchising vulnerable people from an essential service. Virgin must be committed to servicing its customers fully without removing people’s ability to visit its branches.

‘Creating straightforward, no-nonsense products’

A myriad of poorly conceived and mis-sold products is now almost a permanent fixture among the banks. The biggest, and worst, example in recent times is mis-selling of payment protection insurance (PPI), which has seen banks set aside £7.4bn in compensation.

Even still, banks continue to sell complex and poorly performing products. Instead, Virgin must focus on products that deliver a good outcome, and value for money, for its customers.

‘Making a fair profit. Not an excessive one’

Banks continue to make obscene profits, and pay huge bonuses, while customer complaints rise and products continue to be mis-sold.

Barclays, for example, recorded an 18% rise in profits in the nine months to September 2011. This was in the same year it was fined over £7m and ordered to repay £60m in compensation for mis-selling investments. It also set aside £1bn to deal with PPI complaints, although to its credit, Barclays was the first bank to come forward and compensate people with ‘no quibbles’.

If Virgin Money wants to make a fair profit, it should not be at the expense of its customers.

‘We’ll use our expertise with money to do some good in the world’

This is an encouraging move from Virgin Money. And an ethical approach to money, much like the Co-operative bank, will appeal to consumers. But Virgin Money must be upfront and transparent about what ‘doing good in the world’ means, and stick to its principles, no matter how tempting the opportunities for profits seem.

I’m excited about the arrival of Virgin Money on the high street, and if it’s serious about achieving the goals set out above, we could see a completely different approach to banking. But do you think Virgin Money can make a positive change in the world of banking?

Anon the mouse says:
10 January 2012

Cautious optimism…. Virgin products tend to be good for about 5 years and then the slide to customer hostility begins.

I might switch for those 5 years though, if they can follow through on what they are asking.

Gerard Phelan says:
10 January 2012

Unfortunately for Virgin, the result of their aspirations will only be seen at the other end of the period we allow them to prove themselves. When Dutch bank ING entered the UK market, they made all kinds of statements about offering straightforward savings accounts without bonus amounts. A few years later my ING Savings accounts were giving me 0.5% when they gave new customers 3.1%. I have now closed my accounts.

Kiran K says:
10 January 2012

‘Putting customer service ahead of cost-cutting’ and making Fair Profit I think will mean they will not be able to offer the cheapest/best products.
I hope they can continue to do that but if you look at the other Virgin brands they might have started with similar fanfare but then blended away into all the other companies they compete against.

Martin says:
11 January 2012

Claiming you will be the good guys is easy. Proving it will be MUCH tougher. Virgin Money still sells a very poor (it tracks very badly) Index Tracker fund at 5 times the price of the cheapest and credit cards with most of the same dirty tricks that the worst of the Banks do. The best product they ever launched – the Virgin One account – was sold to RBS after 4 years. I do hope they mean what they say, but words are cheap. Despite the associations with Richard Branson’s Virgin brand, Virgin Money has quite a hole to dig itself out of to be able to claim the white knight status with any credibility. The very fact that it has this track record might lead many to be cynical. Sadly I am one of them. But let’s hope for good things while Richard is behind it nonetheless. The saddest thing is he will of course sell it within 5 years…

Aah . . . The Blessed Virgin Money. Virtuous, ethical, and sumptuously styled, but full of northern rock and red in tooth and claw. However, I think we should give it a fair chance and I hope it blows a few cobwebs out of the personal banking sector. I shall probably stay with Nationwide and the Coop but I love the look of the new Virgin Money shop in Norwich and I think it will have enormous popular appeal. Keep an eye on it, though, Which? please.

I think Virgin Money has a lot to do and to see Metro Bank arriving on the scene, I can see the big 4 will try and put up a fierce competition. Lets see what Virgin can do.

As I have good experiences with Virgin – I would switch – if the accounts were as comprehensive as First Direct – but until there was a physical branch near me I wouldn’t bother. The advantage of First Direct is it is a “branch” of HSBC which does have a local bank.near me