Branson raises flag for ‘fleeced SA consumers’
This follows Virgin’s launch at the weekend of SA’s fourth cellular company.
Virgin’s aggressive move into the banking and cellular sectors promises to bring competition into these perceived “fat cat” markets, which could help bring down prices and boost service.
At the launch of Virgin Money in Johannesburg yesterday, Branson said banking was, like telecommunications, a corner of the South African economy where consumers were “being fleeced” by the four biggest banks.
Virgin’s entry into the South African banking and cellular market in the past week is based on undercutting incumbents, and comes at a time when those industries are under unprecedented pressure over fees.
The Competition Commission, for one, has announced a public inquiry into bank fees and the national payments system.
The Virgin Money credit card is significantly cheaper than cards offered by Nedbank, Standard Bank, First National Bank or Absa, with no annual card fees, lower interest rates on credit advances, and lower fees at ATMs.
As with his Virgin Mobile partnership with Cell-C, Branson is partnering a bank to launch Virgin Money, in this case Absa, which will also put in R120m.
However, Absa will get 50% of the profit of this joint venture and will hope to shore up its market share in the credit card market, where it has been losing ground to competitors.
In an interview, Branson said he had been surprised by the extent to which consumers had got a rough deal from all the banks, including Absa.
“I knew it was bad, I just didn’t know it was this bad when it came to fees and transparency,” he said.
He also made an appeal to the South African government to recognise the extent to which consumers had “been fleeced” by banks, cellphone companies and other high-fee industries.
“Regulators and government need to realise that excessive profits are being made, and ensure there is greater competition. They should not necessarily strip away these profits but they should make sure there is more effective competition,” he said.
Branson said Virgin Money was the first step in a co-ordinated effort to undercut the mainstream banks on financial services products. Virgin Money would be launching a home loan product within the next six months as a start.
The mainstream banks together have sold about 6-million credit cards in SA. When the retailers which sell clothes on credit are included, this number rises to 10-million.
Virgin claimed its own research showed that those 6-million credit card users spend R1,5bn in unnecessary fees — consisting of an annual card fee and a fee to belong to a loyalty programme.
Branson said he believed Virgin Money could issue at least 500000 credit cards in SA within three years.
Former BoE Private Clients head John Maxwell, who will be the MD of Virgin Money, said the venture would hope to make profits from the outset, while repaying the initial R240m investment.
Although Absa will be able to count the Virgin Money credit cards in its market share numbers, Maxwell said he expected “there will be some cannibalisation of Absa’s credit cards”.
PricewaterhouseCoopers banking partner Tom Winterboer said SA could expect Virgin to undercut the existing banks, as it had done in other markets around the world.
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