The Virgin Money credit card makes for an excellent savings account. Paying 5% interest on any positive balance in the account, it beats any savings account in the market for smaller deposits. In order to qualify for that rate with an ordinary bank, you generally need a balance of about R20 000.
South Africans have become used to being paid peanuts for funds sitting in cheque or transaction accounts, which the banks use to make extra cash. These are called lazy deposits and, while the balances may not be a fortune to the individual, collectively they make up a nice lump sum for the banks. So it is refreshing to find an account that pays you a decent rate on your cash.
Of course, if you keep cash in your Virgin Money credit card account, Virgin is not going to make a lot of money out of you. But it is no doubt banking on South Africa’s appalling savings rate and heady consumerism to bring in the income.
Another positive that Sir Richard Branson’s company has brought to the financial industry, and will no doubt feature in new product launches, is simplicity.
The Mail & Guardian has been trying to compare banking fees over the past few weeks and is finding it a tough task, owing to the complicated pricing structures used by the banks. Cutting through the complexity that surrounds banking products, the Virgin credit card levies only five charges compared to the 25-odd charges at other banks — and these charges compare favourably.
I pay a R135 annual fee for my existing credit card. With Virgin there are no annual card fees, not even for a second card or garage card. The only time you will be charged is if you need a replacement card, and this R125 charge is to cover the cost of the courier.
When I draw cash from an ATM the fees vary depending on the amount and whether I use my bank’s ATM machine or a Saswitch machine, so I am never certain exactly what it will cost me. Virgin charges a flat fee of R8,75, which applies worldwide; an ATM withdraw overseas costs me R40.
I have not signed up for my bank’s loyalty programme; this would cost in the region of R100 a year. There is no loyalty fee for Virgin’s programme, but the benefits are immediate: 10% off Virgin Atlantic aeroplane tickets; 10% off a cellphone purchased through Virgin Mobile; 5% off Virgin Cosmetics; and 10% off at Branson’s game farm, Ulusaba.
According to John Maxwell, MD of Virgin Money South Africa, the local banking industry makes about R1,5billion out of loyalty and annual card fees.
The interest rates are also competitive. If I don’t pay off my credit card’s debit balance at the end of the month, my interest rate is 20% compared to Virgin’s 15,75%. Any positive balance on my credit card receives a paltry 2,5%.
Virgin is also waiving interest on debit balances for the first three months after you open an account. This is not a launch special, the same applies to anyone opening a credit card account at any time.
My favourite aspect of the Virgin credit card is that no ”pre-approved” cards will be issued. This means we will not be inundated with syrupy-voiced people calling us at inconvenient times, trying to convince us to take out a second credit card.
It will all be demand driven, which is why Branson was prepared to jump off the Sandton Continental Towers with flares on his feet and why Virgin Money has an advertising budget of R50million.
The negatives? Virgin is relying on Absa to do its backend administration. My experience with the Barclaycard attempt at partnering Standard Bank was a disaster, as money tended to get lost in the system. Only time will tell if Absa is prepared to put its commitment behind the venture it has a 50% stake in.
Maxwell said it made sense for Absa to leverage off its existing infrastructure and make more money out of what is, in effect, a fixed cost to it. By entering into this joint venture, Absa has a lot to gain or lose from the success of Virgin’s credit cards. Time will tell, but during the day after the launch the Virgin Money call centre received 3 000 calls and an incredible 26 000 online enquiries. Trying to meet turnaround times while dealing with that kind of volume, now that’s a challenge.
Next stop: home loans
Virgin’s foray into the South African credit card business is just the beginning. By year end Virgin Money hopes to launch the first of a range of home loan products.
Richard Branson has also promised that within two years Virgin Money will have some form of reverse-equity mortgage product, which allows pensioners to unlock the equity in their homes to provide them with a monthly income. Other products will be life insurance and investment products.
Branson says the decision to make a credit card the entry point into the South African financial market was the result of entrenched local behaviour: we are a loyal bunch, despite feeling ripped off — but we feel comfortable testing out a credit card before making any further commitments.
The Virgin brand is also already known locally. Branson says Virgin Active gyms have been a resounding success, likewise for Virgin Atlantic’s route from Johannesburg or Cape Town to London. Virgin Cosmetics — which is sold in the same way as Tupperware, andhas already signed up 10 000 agents — broke even in nine months.
But Virgin Money and Virgin Mobile will undoubtedly be the big money-spinners for Branson. He says that within two and a half years Virgin Money will have a greater range of products, at highly competitive prices, than any other banking institute in South Africa. ”We won’t make the same profits as the other banks as we have lower margins, but we will still make a fair return,” says Branson, who points out that being public companies and legacy issues will prevent the big four banks from being able to cut their margins to the same degree. Another plus for South Africans is that 1 000 jobs have been created by the launch of Virgin Money and Virgin Mobile.
Critics may be concerned about Virgin Money going belly up, but it is a joint partnership with Absa, the largest retail bank in South Africa and, in 35 years, Branson has never let a company go under.
”Even if sometimes I have to dip into my own pocket, it is important to protect the reputation of the brand.” And this is one valuable brand; today 2% of all purchases in the United Kingdom carry the Virgin logo. — Maya Fisher-French