Virgin, Citi partner on credit cards and more

By Vanessa Tripodi

Early in September 2009, Virgin and Citi signed on a deal begun in June to offer a range of Virgin-branded financial products to Australians. With his new partnership, Richard Branson expects to be able to secure 13-14 percent of the market share for credit cards, putting Virgin in the league of the big four banks.

In the late 1980s, Treasurer Paul Keating implemented what later became known as the "four pillar policy," preventing the merger of any of the big four banks. This means that for the last almost 30 years, ANZ, Commonwealth Bank, National Australia Bank and Westpac have been prohibited from merging with each other, but have been free to merge, buy out and take over any of their other competitors. With Commonwealth currently leading the Australian credit card market with 17.4 percent of the share and Westpac following closely with 16.6 percent, it is little wonder NAB fought hard to win the partnership with Virgin. Being beaten out of the running by Citi, NAB is still sitting on just 11 percent of the credit card market.

Currently, Citi sits just under NAB with 8.6 percent of the Australian credit card market. However, Citi chief executive Roy Gori believes that the new partnership with Virgin will allow Citi to rise and strongly hold a more than 14 percent share. The Citi-Virgin credit card is scheduled for a July 2010 release , after which online retail savings accounts and deposits accounts will follow. The venture between the Virgin and Citi groups will also enable the development of a Virgin Blue credit card that will link with the budget airline and be in direct competition with the Qantas rewards cards.

Citi expects to be able to lure 500,000 customers to their new credit cards in the medium term. Citi also plans to add Virgin-branded mortgages to its services to create even more competition with the big four, who, it is no surprise, currently dominate in the home loan market, too. Mr. Gori strongly believes there is room for opposition to the big four banks, despite their current dominance in the market. So much market share has been consumed by the major banks that consumers feel they have little other choice than to bank with one of the "four pillars." With credit card customers and those seeking home loans and even just fair everyday banking accounts crying out for an alternative, the Virgin-Citi merger group is very confident in itself.

Both Virgin and Citi are well prepared for their new venture as Citi has planned to be able to supply the initial funding needed for the credit card start-up from its local balance sheet, and Virgin Money are ready to pick up where they had to let go of their planned Australian mortgage business when the global financial crisis hit and they were faced with higher funding costs as a non-bank lender.

Article by Vanessa Tripodi

Published: October 12, 2009