Banking without the banks, or not?
Trusted brands could use their strengths to shake up financial services
Distrust in the big four banks in Australia have created an opportunity for new competitors like Virgin Money to enter the market for financial services, but is the Australian market ready for it?
“Organisations from outside banking could use their trusted brands, their stronger grasp of information technology and their stronger customer service ethos to potentially shake-up the provision of financial services and hence to take business away from the 'traditional' players,” Professor Steve Worthington from the Department of Marketing at Monash University said.
In a paper published in the International Journal of Bank Marketing, Professor Worthington discusses the strengths and weaknesses of the two main potential entrants into the UK market, Tesco Bank and Virgin Money and draws some conclusion based on some of the challenges that they will face in seeking to enter this market.
“The biggest challenge for Tesco Bank and Virgin Money as full service retail banks may be to grow quickly and profitably, while at the same time doing banking in a way that is markedly different from the mainstream”.
“Tesco admits that one of the challenges it faces is the industry’s standard economic model. The hurdles to overcome on both current accounts and mortgages are high.”
Professor Worthington said he is curious to see what Virgin Money is going to offer after they in 2008 sold off an earlier credit card product in Australia and subsequently deferred plans for a roll-out of some other products.
“In a second attempt to enter the Australian market, Virgin Money relaunched itself in late July 2010 with an online savings account and two credit cards, as phase one of its new strategic alliance in Australia with Citibank," Professor Worthington said.
"Although Virgin claims that it learnt much from its previous partnership in terms of what works, the key challenge in Australia is still that customers, even though they dissatisfied, rarely switch banks,"
"This is probably the key challenge for any new entrant into a mature market for financial services and even Virgin Money will find it tough to shake-up a market with habits and structures as entrenched as Australian personal banking,” Professor Worthington said.