Virgin's decision to enter Canada’s banking sector.

CASE STUDY:

From phones to loans: Virgin's decision to enter Canada’s banking sector;

QUESTION(S): 

Carefully read the Case Study (Title; From Phones to Loans: Virgin’s Decision to Enter Canada’s Banking Sector) attached and answer the questions below.

• Why are the prices of products offered by Canadian banks (Financial institution) so high?
• What types of financial products should Virgin consider offering in Canada?
• How will Virgin get the money necessary to make loans and offer the other financial services it is considering?
• How can Virgin afford to offer products at lower rates than its competitors if the company is partnering with its competitors to provide these services?

SOLUTION(S): 

Why are the prices of products offered by Canadian banks (Financial institution) so high?

This is due to the fact that, the financial services business is in the hands of very few with little or no competition. This was echoed by the founder of Virgin Group PLC, Richard Branson when he revealed that, “the financial services business is in the hands of very few companies and we think a little more competition would be good”. The lack of competition has allowed the banks to take advantage and exploit the masses thereby increasing financial products astronomically.

Some of the banks could be facing liquidity challenges thus the need to increase prices of financial products and services in order to make up for their losses.

What types of financial products should Virgin consider offering in Canada?

• Traditional Investment and products – Call accounts and fixed deposits.
• Lending solutions – Overdraft, personal loans, vehicle loans etc.
• Investment advisory services.
• A range of card products – Visa credit card, Visa prepaid card, Visa debit card.
• State of the art private banking lounges strategically located in various cities in Canada.
• A suit of E-banking/online services- Internet Banking, Mobile banking App.

How will Virgin get the money necessary to make loans and offer the other financial services it is considering?

Virgin will be able to raise funds to offer financial services by using proceeds generated from the sale of some of its businesses, most notable was the sale of Virgin Mobile to BCE Bell Mobility.

They also partner with other businesses in order to be in the position to provide those financial products and services. A typical example is their partnership with MBNA for the production of the Virgin Credit Card.

How can Virgin afford to offer products at lower rates than its competitors if the company is partnering with its competitors to provide these services?

One of the major reasons why banks in Canada are not able to offer products at a lower rate is the issue of liquidity as explained by Mark Sibthorpe, founder of StarBank.ca that, “The existing financial institutions are having liquidity issues, so if you have cash, there are opportunities”.

These banks increase the prices of financial products and services so as to make up for their losses.  Virgin’s Partnership with other companies is strategic as they intend to leverage relationships in order to distribute risk.

By partnering with other businesses, the business resources and contributions are shared among all the stakeholders in order to minimize risk. This helps Virgin to conveniently offer products and services at lower rates, attracting more customers and in turn making lots of profit.  

REFERENCES

Ivey Management Services. (2009). From phones to loans: Virgin's decision to enter Canada's Banking sector. Richard Ivey School of Business (University of Western Ontario), 1-3.

Perkins, T. (2010, June 30). Globe and Mail: Virgin Money hasn't given up on Canada. Retrieved from The Globe and Mail Website.: www.globeandmail.com.

Published by: HR Forum News