Virgin Money hit the high street on Monday, with the first re-branded branch of Northern Rock launching in Newcastle. The nationalised lender was sold to Richard Branson's Virgin group for £747 in November in a move that the government hopes will inject some competition into a staid retail banking market dominated by five large players.
Bringing more competition onto the high street formed a central part of the Vickers Report on the banking industry, which recommended making it easier and cheaper for customers to shop around and switch current accounts. With trust in banks also still low, after the financial crisis, space has opened up for new entrants.
The Co-operative Bank has been given preferred bidder status in the sale of 630 retail branches by Lloyds, fuelling a major expansion for the group. Many analysts believe that tentative steps from supermarket giants Tesco and Sainsbury's into branded personal finance are a precursor to a move into full-service banking, as the government steps back to try to open up the market to players from outside of the industry.
Northern Rock was nationalised at the height of the financial crisis. It was split into a "bad" bank - its toxic loan book - and a "good" bank. The latter was sold to Branson, the former remains on the government's balance sheet.
Virgin, a music-to-airlines conglomerate, has a reputation for shaking up the industries it enters.
"They're going to bring the Virgin approach to banking, so you would expect some innovative, brash competition like Virgin has done in some other sectors," Jason Karaian, financial industry analyst at the Economist Intelligence Unit, told the Huffington Post UK. "That would be good for the banking market as a whole, because at the moment it's quite concentrated."
"The Virgin Group has always gone into markets where there's been an opportunity to make things better for customers," Branson said at the opening of the rebranded store, according to the Press Association. "We've been doing it for 40 years, with some real milestone moments along the way, from our first steps in the record industry to launching Virgin Atlantic."
Doing that, according to Karaian, could be a "long, slow slog."
"With all the bluster that you hear from Virgin, I don't expect them to build any meaningful market share over the next year or so. I think this is a decade long proposition," he said.
The company launched two savings accounts products last week, the first since it announced its acquisition. It, like other new entrants, will have to wait until next year before rules that will make it easier and quicker for depositors to switch providers come into force.
The hard numbers show that new entrants have struggled to take customers from the established players, he added. However, companies coming from non-banking heritages do bring innovation and new distribution channels - Branson has suggested that Virgin Money branches could find a place in train stations where the company runs its rail franchises.
"This is a very well known brand, and their experience with other consumer-facing businesses should stand them in good stead for banking," Karaian said.
"And it could bring some innovation to the market, in that it will bring its expertise from mobile phones and airlines and other sorts of retail ventures that perhaps established and focused banking groups might not have. That would also be the case for Tesco or Sainsbury's, if they do decide, like Virgin, to get into the full-service banking industry."
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