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?