The UK government has confirmed that Virgin Money will buy Northern Rock, with the sale due to be completed at the beginning of 2012. This will create a new entrant with the potential to contend with the largest players almost overnight. However, the amalgamation of the two providers will not be without obstacles as customers from both sides start to witness change.
Virgin Money has waited on the sidelines for an opportunity to create a high street presence for a number of years. The acquisition of Northern Rock and its 1 million customers and 75 branches hands it an almost fully functioning retail bank. It also fulfills the company's aspirations to offer its own savings and mortgages. In fact, with Virgin Money bringing its card and insurance products, the two providers complement one another well, offering a more rounded package of products to consumers.
The new bank will be the first new entrant with a fully formed branch network to hit the UK high street since the financial crisis, increasing the impact of the launch of the bank considerably. Unlike Metro Bank, which has grown organically from just one branch in 2010, the new bank will already have 4 million customers and a significant branch network. This will give Virgin Money an excellent starting point for growth and improvement.
Virgin Money already has a focus on customer service and simplicity for the consumer, something that is likely to continue with the new bank. Personal service in-branch and the use of technology to increase convenience are likely to be key to Virgin Money's strategy. The bank will probably look to target customers who are dissatisfied with their current banking experience and consumers who already buy into the wider Virgin brand. The acquisition may see a new, younger audience attracted to Northern Rock's old branches and products as these consumers associate themselves with what they view as a "cool" and refreshing brand.
Virgin Money may, however, face a hurdle in terms of customer attitudes towards the acquisition. While current Northern Rock customers will not see any change to their existing products, their branches are likely to be rebranded and there may be resentment about the sale. Virgin Money will need to prove that it offers an excellent service and highlight the benefits of the new product offering. Virgin Money's current online and telephone customers may also be reluctant to come into branches, so the provider will want to demonstrate the value of a branch network. A continued high level of customer service throughout the transition phase will be imperative to maintaining the brand's image.
The lack of a Virgin Money current account, which is not due to be launched until 2013, will present another obstacle to growth. Previously the provider has said that its accounts will carry a fee to use, so the new bank will need to prove its credentials in its first 12 months if it is to justify this banking model to consumers. With customer satisfaction driven to a great extent by levels of customer service, Virgin Money will need to demonstrate how it can differ from the incumbent banks in these terms. The Virgin brand has a reputation for stirring up the industries it moves into, and banking may be no exception. Virgin Money's ambition to make "everyone better off" hints at an intention to take an innovative and fresh approach to retail banking, one that will hopefully center on the consumer.