Virgin Money sets its sights on retail banking

Commentators expect the group to have to launch products that feature on the best buy tables if it wants to expand its presence in the retail banking market, starting with eye-catching savings rates.

Virgin Money has made no secret of its ambitions to offer a full banking service, with products including savings and current accounts, mortgages, credit cards and investments.

Yesterday's acquisition of Church House Trust represents the first step in this process, while it has been widely speculated that it will try to buy some of the bank branches that Royal Bank of Scotland and Lloyds Banking Group must sell or the good parts of Northern Rock.

But in the meantime, the group's only distribution channel is through the Internet and telephone, leaving it reliant on featuring in best buy tables if it wants to win new customers.

Virgin Money has given very little detail on the products it will offer, saying only that they will be "better but different", and will provide good value and simplicity.

The group has offered a best buy credit card, with 16 months of nought per cent interest on balance transfers, for the past 18 months.

But its offering in the savings market is less impressive, currently paying interest of just 0.1 per cent on its deposit account.

Despite the lack of detail available on the products it plans to launch, commentators still welcomed yesterday's announcement, saying it was positive news for consumers.

Kevin Mountford, head of banking at moneysupermarket.com, said: "Following a period of mass consolidation in the banking and building society sectors it is great to see a serious player making a move to challenge the big banks.

"We have already seen Virgin Money play an aggressive role in the credit card market with their best buy products, and we can expect them to do likewise across a broader set of banking products."

He expects the group to initially focus on attracting savers' money to enable it to build up enough funds to launch a mortgage range further down the line.

He said: "Before you can get into lending products you have to get savers money. I expect it to ramp up its savings activity and follow that with mortgages."