The Branson flair
It was a jet for the cellphones and a foofie slide for the credit card launch. And Branson didn’t mince his words this week as he accused SA’s banks of ripping off credit cardholders to the tune of R1,5bn a year and predicted his credit card would lead to the biggest shake-up yet in SA’s credit-card market.
Branson’s strategy is to attack what he calls fat and bloated industries everywhere, as he’s now aiming to do here. Virgin Mobile, a joint venture with Cell C that will piggyback off Cell C’s infrastructure, offers a prepaid product and two contracts that are pitched as being much simpler and cheaper than the offerings of Vodacom, MTN or Cell C itself.
The Virgin Money credit card carries no annual fees or loyalty fees and will charge more competitive interest rates than those of the big four banks, which have a 92% share of the 4-million credit cards in issue in SA.
Virgin is a sexy brand with a high profile in the South African market and there’s no question the cellphone and credit card offerings will have a big impact. Nor is there much doubt that the headline packages on offer will indeed be cheaper than rival offerings. Equally though, there is a good deal of smoke and mirrors, and if you take the tariff structures to pieces carefully,
Virgin’s offerings aren’t necessarily quite as competitive as the marketing hype would have us believe. It all depends on how they are used. So, for example, Virgin Mobile’s prepaid tariff is more expensive than that of rivals for the first five minutes of call time per day, but cheaper after that.
The problem, though, one analyst notes, is that this means it benefits only customers spending at least R352 a month — which cuts out the vast majority of prepaid cellphone users. Similarly, the contract packages (which don’t offer the free handset upgrades South African customers are used to) may work out cheaper or more expensive than those of rivals, depending on your usage pattern. The quality of service, of course, depends on Cell C.
The credit card clearly is cheaper than those offered by the major banks — as long as you behave as the package intends, using it strictly as a credit card. But try going into a bank branch and using your Virgin card to make a deposit or withdrawal and you’ll find you’re ripped off at R30 a transaction, compared to, say, R7,50 on a Standard Bank card. The ATM charge on a Virgin card withdrawal, at R8,75, is also pretty high.
So customers and potential customers should certainly be doing their sums and reading the fine print — as good consumers always should. But in a way, none of these comparisons matters fundamentally. The point is that Branson, with his gift for marketing and Virgin’s talent for innovation, is going to shake up two industries that could certainly do with it.
There clearly is something wrong in a cellphone industry in which charges are demonstrably higher than they are in many other similar markets — and whose regulator seems reluctant to take action on pricing. We’ve already seen the cellphone operators respond to Virgin’s entree by cutting and changing some of their tariffs.
And for SA’s banking industry, the entree of a new credit card competitor can only be a healthy sign that market forces are helping to keep the industry honest, countering any notions that it’s not a competitive industry.
That’s particularly important right now, given that bank charges are under scrutiny at the Competition Commission. Virgin’s entree could well prompt more innovation and greater price competition in a market that is already fiercely contested. That’s good for consumers. It’s good for banks, too.
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