Andrew Black, president and CEO of Virgin Mobile Canada photographed at his company's office on King St., Toronto, April 21, 2009. Fernando Morales/Globe and MailFernando Morales/The Globe and Mail
Where most people see bad news in the global crisis gripping the financial services industry, Britain's Virgin Group PLC eyes potential.
In the contrarian view of Sir Richard Branson's conglomerate, today is an opportune time to start a bank. And after floating the idea publicly more than a year ago of launching a Web-based bank for Canadians, Virgin is close to making a final decision, following news last week that it is selling its stake in Virgin Mobile Canada to BCE Inc.'s Bell Mobility.
"Richard thinks this industry in Canada needs some shaking up. It's been on his list for a while," said Andrew Black, his emissary in the country and president and chief executive officer of Virgin Mobile Canada. "It's an interest and now it's becoming a priority for us to find ways to make it happen."
The company wants to use money and momentum that Virgin Mobile Canada generated to take a run at other industries here it considers poorly served. Sir Richard has said that the problems and frustrations Canadians find in wireless are similar to the ones they encounter at the banks: unsatisfactory customer service, high fees and lack of consumer choice.
"It's an interesting time for banking because people aren't so sure, now that they have been through this tough point for the last six months or year, about who to believe and who to listen to," Mr. Black said.
"They don't trust their banks to the same degree that maybe they did," Mr. Black added.
But it's not just the economy that presents an opportunity. Virgin thinks this is the time to catch the next wave of Internet banking, where people who are already comfortable with the technology start to do more online. Web-based banks, such as ING Direct, have already seeded the Canadian market for more types of online transactions, such as getting a mortgage.
"The more you let customers do online, the more they will do online," said Nathan Rosenberg, Virgin Mobile's chief marketing officer.
The combination of Virgin's expertise in call centre operations and its sophisticated global Web presence give it a strong foundation for offering financial services, he adds.
Virgin has launched financial services in four countries to date, with Britain being the first and most comprehensive offering. Virgin Money in Britain offers savings and investing accounts, mortgages, loans, credit cards and insurance. Its pitch to customers is "a better deal."
But even as Virgin rails on the service performance of established competitors, its modus operandi is to team with the very industry giants it attacks in its marketing campaigns. In Britain, Virgin's deposit accounts and mortgages are operated by Royal Bank of Scotland, loans are provided by the Co-operative Bank, credit cards are issued by MBNA Europe Bank Ltd., and insurance is underwritten by Scottish Widows PLC and other firms.
Without a banking licence, Virgin is prohibited from taking deposits and acting as a traditional bank. The situation tripped up the company's audacious move last year to acquire the troubled British financial institution Northern Rock PLC.
That spurred Sir Richard to announce in March that his company would become a full-fledged bank in Britain within a couple of years, either through a takeover or by acquiring a banking licence. The company also markets financial services in Australia, South Africa and the United States. Virgin Money U.S.A., was created through the 2007 acquisition of CircleLending and focuses on lending money between friends and family.
Virgin has not applied for a banking licence in Canada at this time. Mr. Black said a launch of Virgin Money in Canada would be similar to other direct banks operating here. These include ING Direct, Canadian Tire Bank and President's Choice Financial, all of which hold Canadian banking licences.
Sir Richard stormed Canada in 2005 with his wireless venture, a 50/50 partnership with Bell Canada. Radio stations and music festivals followed, with the British company - which has 60 million customers worldwide - viewing Canada as a test market for U.S. investments.
Virgin Mobile Canada turned into one of the biggest drivers of growth for Bell Mobility. The two companies have shared revenue, with Bell paying a licensing fee to Virgin and Virgin running its wireless traffic over Bell's network.
On May 7, Bell announced that it would pay $143-million to buy Virgin's stake in the venture and would continue to pay licensing fees to use the Virgin name for its own discount wireless brand.
Sir Richard opted to sell after just four years, not out of fear of new competitors arriving next year, but because he felt that Bell, as sole owner, would invest more aggressively in promoting Virgin Mobile, Mr. Black said.
"Richard has made a very significant gain on his investment and is very pleased about that, and he recognizes the benefit of what that means for the Virgin brand and for its future here in Canada."
Analysts estimate that Virgin Mobile has anywhere between 650,000 and 850,000 subscribers, representing as much as 13 per cent of Bell's wireless customer base.
"Canada is ripe for more Virgin businesses to land there soon and we are working hard to make that a reality," Sir Richard said in a letter to Virgin Mobile Canada employees on May 7. "There are a few sectors that could do with some shaking up and after seeing how Canadians responded to [Virgin Mobile] they're ready and we're ready for more."
Some in the Canadian financial industry agree that it would be a good time for the company to make its move here.
"The interesting thing about Virgin is they don't really take any risk. What they basically do is partner with companies, so they really lend off balance sheet," said Mark Sibthorpe, founder of StartaBank.ca, a Montreal-based consultancy. "The existing financial institutions are having liquidity issues, so if you have cash, there are opportunities," he said.
With files from Tara Perkins