Virgin Direct set to launch banking subsidiary

Virgin Direct, the financial services arm of Richard Branson's airlines to cola empire, is set to launch a banking subsidiary, offering a range of savings and loan products to consumers.

As Nic Cicutti explains, Virgin's entry into the market marks a new stage in savers' drift away from traditional high street banking institutions.

The announcement of Virgin's move into banking, expected later this week, is thought to involve links with Royal Bank of Scotland (RBS), which recently unveiled its own pounds 600m takeover plans for Birmingham Midshires Building Society.

The deal is understood to be backed by AMP, the Australia insurance giant which is also a big investor in Virgin Direct and is said to be prepared to pump hundreds of millions more into the joint venture.

Virgin refused to comment yesterday on the deal, which comes barely two and a half years after Virgin's entry into the financial services market. Earlier this year, Virgin announced that it had more than pounds 1bn in funds under management, having won hundreds of thousands of customers to its low-cost PEPs and personal pensions.

In recent months, Virgin has also launched a range of critical illness and term assurance products. Analysts have long argued the next logical step for Virgin lay in more traditional savings and mortgage accounts, where the company could compete effectively.

Other trail blazers in recent years have included Direct Line, which now offers both savings and mortgage products and basic life assurance as well as motor and home insurance, and Sainsbury and Tesco.

Many observers predict a big slice of the market will be captured by these outsiders, who are able to offer competitive products by doing without expensive branch-based distribution networks.