In February, we learned that Virgin Money had spent £38.3m on building a digital banking proposition. The news prompted a good deal of coverage in the press, but seemingly forgotten was a strategy update from November 2017, in which a wealth of detail on the planned digital banking proposition was divulged.
The presentation lays out a business vision that is to build “a customer-centric, data-driven and digitally enabled service that goes beyond the bounds of traditional banking”. For now, this service goes by the name VMDB (Virgin Money Digital Bank).
The concept of a “universal account” will be key to the offering. This account will contain “money pools”, which will allow users to segment their money within a single account. There will be pools for saving, spending, borrowing, bills and a user-defined custom pool. The intention is to eliminate the need for multiple accounts by combining all of these products and services within one, unified account.
Research carried out by YouGov on Virgin Money’s behalf in 2017 shows that over 80 per cent of its customers would use money pools to help manage their money.
Other core features of the digital bank will include coaching, offering real-time support for users; snapshots (“personalised, curated and bite-sized calls to action”); a smart ledger feature, giving the ability to search, filter and sort financial activities; and an intelligent assistant which “learns your behaviours”.
Virgin plans to emphasise the use of plain English in the app's Terms and Conditions. Users will be able to sign up to the service in just a few minutes, and will be offered “single-step” payments for frequent payees. Virgin also plans to throw in a financial calendar to help users visualise key financial commitments.
Borrowing somewhat from the terminology employed by digital banking darling Revolut, Virgin Money’s presentation also dwells on the concept of “beyond banking”. The firm clearly sees significant opportunity to use its digital bank to branch out into pastures new. The presentation references automatic prompts, renewal anniversary notifications and money savings deals as examples of “beyond banking” features. These features sit outside of the services encompassed by the “universal account” and indeed outside of the remit of traditional banking. They also form a key part of the business case for launching the new bank.
Five years from now, Virgin expects to have captured one million customers. It is worth noting, for context, that Revolut recently passed 1.5 million customers, less than three years removed from launch.
VMDB’s plan is to achieve significant penetration within Virgin’s existing customer base, across both its financial services arm and the broader Virgin Group, which boasts 19 million customers all-told. As of November last year, Virgin Money had 3.3 million customers. VMDB is also planning to acquire customers via affinity partnerships, PCA (personal current account) switching and Open Banking/PSD2.
Virgin projects raking in £600m in deposits in the digital bank's first year of operations, rising to £5bn in deposits after five years. This cheap, diversified new source of funding stands as an important part of the business case for VMDB. The presentation also highlights “materially lower” costs for the digital bank – despite plans to employ 200 staff – due to a structurally cheaper operating platform and cost efficiencies relating to brand strength and the ability to leverage Virgin’s existing customer base. As noted above, “beyond banking” features are also expected to carve out new revenue streams, such as referral fees and servicing fees.
VMDB is being built afresh with the help of 10x Future Technologies, a next generation bank-building firm founded by Anthony Jenkins, former chief executive of Barclays. Virgin partnered with 10x in the second half of 2017, after beginning work on the project earlier in the year. All components of the bank will be digitised, allowing it to operate as a “modern digital business with a highly configurable, single and integrated architecture”.
The beta launch is planned for later this year, with a full market launch planned for 2019.
The opening slides of the presentation, which are attributed to Virgin Money chief executive Jayne-Anne Gadhia, contain quotes summarising the rationale for launching a digital bank, including: “Virgin Money is uniquely placed to create a digital, data-driven, customer-centric bank.”
The slide below breaks down that rationale in more detail.