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Adam Aiken, Editor
Thursday, November 17, 2011
A shake-up in high-street banking following Virgin Money’s takeover of Northern Rock should be good news for consumers.
The high-street banking sector is widely viewed as a conservative market, with most customers displaying inertia when it comes to switching accounts, and less choice available to them following the merger of various businesses over the past few years.
But observers believe that the Virgin-Northern Rock tie-up could lead to greater competition within the sector.
If the deal is confirmed, it would give Virgin a presence in the mortgage market for the first time. It currently offers credit cards, general insurance, and savings and investment products but not home loans.
Virgin would take on a million customers, 75 branches, more than 2,000 staff, a £14 billion mortgage book and deposits of £16bn.
Michael Ossei, a personal finance commentator at comparison service Uswitch.com, said: “Virgin is already a powerful online brand with a loyal customer base, but now it could become a real contender on the high street.
“By combining the best of Northern Rock’s competitive mortgages and savings products with its credit cards, consumers could see a new bank on their high street that can really challenge the existing ones.”
He added: “Existing Virgin customers could also end up better off if Virgin comes out fighting – its savings rate is just 0.1pc, compared with Northern Rock’s more generous 2.8pc.
“A serious player like Virgin entering the marketplace could change the banking landscape on the high street, increasing competition and choice.
“With Tesco Bank and Metro Bank in the South-East, banking in 2012 is set to become more rewarding for consumers.”
John Miles, of Gocompare.com, said: “This could be great news for consumers and may give high-street banking the shake-up it so badly needs.
“Just 4pc of UK consumers switched their bank accounts in the last 12 months, and 28pc have never switched banks.
“Virgin may have the strength of brand to be able to persuade customers that it offers a real alternative to the big high-street players, but there will also be a huge expectation that its products and services will set it apart from the corporates.
“At the moment, Virgin’s deposit and cash Isa interest rate is a disappointing 0.1pc, so there’s plenty of room for improvement.”
Consumer group Which? said the news was a step in the right direction, but more needed to be done.
“A strong challenger to the dominant banks is vital if consumers are to see greater competition, fairness and a better deal on the high street,” said executive director Richard Lloyd.
“Virgin Money’s purchase of Northern Rock is a good first step, but more must be done.
“As the Independent Commission on Banking recently concluded, the sale of branches by Lloyds Banking Group must ensure there is at least one other genuine new entrant to the retail banking market.”