The £1.7bn ($2.4bn) takeover of Virgin Money by CYBG, which was agreed on June 18, means that the high street will gain a credible challenger to the UK’s four largest banking groups.
Despite the massive upheavals of the last decade – the banking crisis, the growth of digital banking, and the emergence of new challengers – the Big Four (Barclays, HSBC, Lloyds Banking Group, and RBS Group) still maintain a stranglehold, with a collective current account market share of around 60%.
However, the merged group, with a combined network of more than 240 branches, will provide more effective competition as a result of its more visible presence on the high street.
Despite the rapid growth of digital banking, GlobalData’s research shows that branch proximity is still a key consideration for most consumers (58% of those who opened a bank account in 2014–17 cited branch location as playing a part in their choice of provider).
The deal also highlights the continuing importance of branding in financial services. CYGB will utilise the Virgin Money brand across the combined organisation, paying Virgin Group up to £15m per year for the privilege.
Virgin is a far more well-known brand among consumers than either Yorkshire Bank or Clydesdale Bank, and our research shows that brand and reputation are among the most important attributes that consumers look at when choosing who to bank with.
The biggest hurdle the enlarged bank will have to overcome is IT integration. In order to fully realise the economies of scale that will result from the deal, Virgin Money will eventually have to migrate all systems and customers onto a single platform.
However, the execution risks inherent in this move are high, as the unhappy experience of TSB proves. Nevertheless, assuming the banks gets this right (most probably by enforcing a phased migration over time), it will be in a significantly stronger position to compete for customers.
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