Citibank To Challenge Big Four In Australian Credit Card And Mortgage Lending With Virgin Money Deal

Post by Sharat on September 21, 2009 · Under Business News, Company News, Online Savings Account, banking, credit cards, home loans, mortgages · Comment

US banking giant Citibank, has signalled its intention to become a major retail banking player in Australia, and wrest away market share from the incumbent Big Four banking groups. The lender on Monday announced a deal with Virgin Money that will give it a marketing platform to distribute credit cards, collect retail deposits and originate mortgages.

Last week Citi signed a 10 year profit share deal with Virgin Money, which commits its retail banking unit Citibank to provide funding infrastructure and a branch network to the joint venture.

Cit would like to replicate some of the success that Virgin Money had when it first undertook a joint venture of a similar kind five years ago with Westpac. Virgin Money eventually became a major player in the low interest rate credit card segment, eventually acquiring more than 750,000 accounts.

Virgin Money’s joint venture ceased to be operational last year with the majority of its customers accounts ultimately passing on to its joint venture partner Westpac.

Citi beat out Australian banking major National Australia Bank (NAB) in its bid to become Virgin Money’s joint venture partner. NAB has a slightly larger credit card market share compared with Citibank.

Citi is keen to break ground previously held by the major domestic retail banking groups, setting the ambitious target of exceeding NAB’s market share in three years. Citibank’s Australia chief executive has set the goal of increasing market share from its current 8.6 per cent to above 14 per cent in three years.

CBA and Westpac currently have the biggest share of the credit card market holding 17.4 per cent and 16.6 per cent respectively, whilst NAB’s market share stands at around 11 per cent.

“We want to break into the top four and take a market share of 13-14 per cent, and the trajectory of the business is in line with that. We’re going to provide a substantial boost to the growth in cards.” Mr Gori said.

The first credit card to be issued by the Citibank-Virgin Money joint venture is scheduled for launch next July, after which online savings and deposit products will then be rolled out. The accounts will only be able to be operated through the internet or through phone banking, and depositors will not have access to branch banking facilities.

The joint venture has plans for rolling out a credit card linked with Virgin Blue, which will include a rewards points program, in an attempt to directly compete with Qantas associated cards.

Citibank has set a target of 500,000 customers for the new credit cards in the medium terms, and the joint venture also plans to roll out a Virgin branded mortgage product in an attempt to challenge the dominance of the Big Four in mortgage lending.

Mr. Gori said there was room for an alternative banking provider, despite the domination of the big banks.

“I would argue that this is the best time to look at launching a product like this. There is demand for an alternative because there has been so much consolidation. There has been so much market share taken by the Big Four. We think the marketplace and consumers are screaming for an alternative. I think this is the best time.” Mr. Gori said.

Citibank said it would fund the credit card joint venture through its on domestic balance sheet initially, but later hopes to finance the portfolio from retail deposits over the long term.

In the last six months, Citibank has increased its deposit base by $500 million largely through term deposits.

Last year, as a result of the credit crisis, Virgin Money had to exit the Australian mortgage lending business because its status as a non bank finance company made funding either impossible or too expensive to obtain.

Virgin Money continues to operate a domestic superannuation and insurance business.

Compare Australian Credit Card Deals