Executive Interview - Rohan Gamble - Managing Director, Virgin Money
(17 February 2004 – Australia) High profile Virgin chairman Richard Branson has made no secret of the fact that too few companies have had it too good for too long in several Australian markets, and that many Australians are unaware of the raw deal they’ve been getting compared with consumers in the UK or US. Having launched airline Virgin Blue and Virgin Mobile, the entrepreneur turned his attention to Australia’s financial services markets. The company’s first venture was the Virgin credit card in partnership with Westpac. So far the bank has issued some 200,000 credit cards to customers attracted by its no annual fees package.
Branson chose former strategy consultant Rohan Gamble to lead Virgin’s attempt to "shake up" Australia’s financial services markets. Initially engaged as an independent consultant by Virgin to create the company’s market entry strategy, Gamble became increasingly involved in business planning and was offered the role to run the business, a decision which he "didn’t have to think about for very long".
East & Partners executive editor Paul Bartholomew spoke to Gamble about Virgin Money’s plans for Australia.
You were quoted as saying that the Virgin Money team in Australia contained no banking expertise but that this was a positive thing for the business. Why is this so and what does that effectively say about the banking industry in Australia?
The industry as a whole in Australia is really stale; it has the shutters up and the same people have been doing similar things for many years. It’s very difficult for the industry to innovate because it very rarely gets outsiders coming in with new ideas; instead it’s just the same people hopping from one bank to another. So how can the industry innovate in that environment? It’s very difficult.
We’re able to come in with an outside view and look at things with fresh eyes – and particularly through the eyes of the consumer – which means we’re able to design products that consumers actually want and in turn drive profitable business that way. I don’t think the industry is very good at that. It’s an industry which is represented by very similar product offerings, limited innovation, and limited competition, and as a result consumers end up with very little choice. We have a team which is deliberately low on industry experience to enable us to take that outside view and see things with fresh eyes, which is exactly what we did with the credit card, which has been an outstanding success and that’s what we’ll do with future products.
How much was Virgin Money able to leverage from the profile and success of the other Virgin companies in Australia?
I think the Virgin brand is incredibly strong in Australia at the moment. It’s unbelievably powerful in this country right now. The Virgin companies that were in Australia before us, ourselves and hopefully companies after us are providing breakthrough propositions for the customer. We did a huge amount of customer research before we finalised the credit card product and part of that involved taking the product to focus groups. Initially people were sceptical about what we were offering them and said ‘there must be a catch somewhere’. But once they knew it was a Virgin product, they said they believed us as they believe in the brand.
In terms of crossing over into financial services, the market has been incredibly receptive to us. It’s been a perfect fit in Australia as the market was stale, particularly in credit cards, despite being represented by over 200 products, none of which were particularly good for the customer compared with other world credit card markets. So it was ripe for someone to come in and give them a better deal, so the brand has translated very well to financial services.
What other products are you considering rolling out in Australia and how are you going about this process?
When we launched in May we said we were here to shake up Australian financial services and we’re starting with credit cards. I’d say if anything that’s even stronger now as the cards have been more successful than we expected. As we start to look at other products we realise there are other equally attractive opportunities out there. The question now, to be honest, is not so much if we launch another product, it’s when, or what order to do them in. Our focus is on being a mass market provider of retail financial services products so we will look for products where we can create simple, easy to understand, high value products, backed by top quality service, which is what we’re about. In terms of exactly what product we launch next and when, we don’t yet know at this stage but we’re looking at the whole market.
In the UK, Virgin provides life insurance, pensions, mortgages and loans. Will you introduce these products in Australia?
It’s really important to take the Australian market on its own merits; it would be a mistake to copy the UK and we didn’t do that for the credit card. Having said that, all the products that exist in the UK would definitely be worthwhile products in Australia. In particular, loans and mortgages on the credit side and on the other side, investment products and general insurance products are all interesting and we’ll be looking at them over the next two or three years.
We will launch any additional product in the same way we launched the credit card, that’s to say we’ll work out what we think the right product is to take to market. Once we work that out then we’ll seek a manufacturing partner to help us take it to market. We’re not actively talking to manufacturing partners at this point because we’re not at that stage but we’re not far off it.
Have these manufacturers been approaching you?
Yes, more than we can keep up with at the moment. I think the manufacturers have seen the success of the credit card and the value of the Virgin brand and are becoming increasingly interested in partnering with us, which is fantastic and that interest is a great sign to us that we will be able to reasonably easily grow our product suite beyond the credit card. We’re getting approaches from all sorts of financial institutions, both large and small, wanting to help us with the next product.
UBS said Virgin Money would not make a profit in 2003 or 2004. When do you expect to post a profit and how long are you giving yourself to achieve this?
Well, quite frankly the UBS report is wrong. Our ’03 results haven’t come out yet but when they do they’ll show that. We are profitable as a global business, and in Australia we’re cash flow positive and we’re reinvesting all of that cash back into developing the business. We’re not a big bank with shareholders insisting on profit and we’re not even looking to make a profit at this stage. But we are generating cash, which will be reinvested into doing the next thing. There were reports earlier in the year saying that we didn’t have a hope of making money and we’ve already proved those reports wrong.
What do the major domestic banks make of Virgin Money? What have you been hearing in the market place?
Quite honestly, I believe the major banks are in denial and it doesn’t cease to amaze me that we’ve still had no decent competitive response to our credit card. It blows my mind that we’re approaching 12 months and our competitors are allowing us to take market share and build up a customer base, which can only help us with the launch of the next product. So I can only assume that they’re in denial, that they don’t believe we’re here to stay, but we’re absolutely here to stay and the longer that attitude continues the happier we will be.
So why aren’t the majors responding to you?
Why they’re not responding I don’t know, but we’re delighted that they’re not. If they were to compare overseas markets then they would have to respond. If you track what’s happened in the UK over the last 10 years on credit cards, then we’ve really done to the market what happened 10 years ago in the UK. If you now go forward 10 years from that date in the UK, you’ll see a credit card market where annual fees don’t exist, where interest rates are really low, and the same thing you would assume needs to happen here. Given that we’ve launched, it will happen here.
The only question is: will we take all those customers or will someone else share them with us? I fully believe that within five to 10 years, annual fees on credit cards won’t exist in Australia. We’ve guaranteed that we will never do that. The amount of money banks must be pulling out of credit cards with interest rates at 18 percent and annual fees that have skyrocketed over the past two years is outrageous. But it just shows how low the competition has been in credit cards. It takes someone like us to come in and let consumers know they’re being ripped off.
The Virgin brand is obviously synonymous with Richard Branson. How much contact do you have with him?
He’s not hands on in terms of day to day management as there are some 250 Virgin businesses around the world and it couldn’t possibly work that way. Any managing director that’s not happy with 100 percent autonomy wouldn’t last at Virgin. Having said that, he’s incredibly excited by what we’re doing in Australia and does keep involved. He’s fully supportive of what we’ve done in the market so far and supportive of our ambitions to expand that through various products. Richard being Richard, he wants it all to happen as soon as possible but the great thing is that we all do as well.
What kind of team do you have at Virgin Money and how do you see that expanding in terms of numbers and expertise?
We have a small team; we’ve got around 30 people at the moment but that will grow as we expand our products. Our business development team is certainly growing quickly. We operate under what we call ‘brand and packager; model, which means we bring what we’re good at to the table: brand, approach to customers and customer service and marketing. We partner with what we call a manufacturer who provides the back office, the underwriting, the mass processing etc, which is something we don’t need to be good at as it doesn’t match our core competencies. By using that model we have a small, nimble, dynamic team.
East & Partners executive editor Paul Bartholomew spoke to Gamble about Virgin Money’s plans for Australia.
You were quoted as saying that the Virgin Money team in Australia contained no banking expertise but that this was a positive thing for the business. Why is this so and what does that effectively say about the banking industry in Australia?
The industry as a whole in Australia is really stale; it has the shutters up and the same people have been doing similar things for many years. It’s very difficult for the industry to innovate because it very rarely gets outsiders coming in with new ideas; instead it’s just the same people hopping from one bank to another. So how can the industry innovate in that environment? It’s very difficult.
We’re able to come in with an outside view and look at things with fresh eyes – and particularly through the eyes of the consumer – which means we’re able to design products that consumers actually want and in turn drive profitable business that way. I don’t think the industry is very good at that. It’s an industry which is represented by very similar product offerings, limited innovation, and limited competition, and as a result consumers end up with very little choice. We have a team which is deliberately low on industry experience to enable us to take that outside view and see things with fresh eyes, which is exactly what we did with the credit card, which has been an outstanding success and that’s what we’ll do with future products.
How much was Virgin Money able to leverage from the profile and success of the other Virgin companies in Australia?
I think the Virgin brand is incredibly strong in Australia at the moment. It’s unbelievably powerful in this country right now. The Virgin companies that were in Australia before us, ourselves and hopefully companies after us are providing breakthrough propositions for the customer. We did a huge amount of customer research before we finalised the credit card product and part of that involved taking the product to focus groups. Initially people were sceptical about what we were offering them and said ‘there must be a catch somewhere’. But once they knew it was a Virgin product, they said they believed us as they believe in the brand.
In terms of crossing over into financial services, the market has been incredibly receptive to us. It’s been a perfect fit in Australia as the market was stale, particularly in credit cards, despite being represented by over 200 products, none of which were particularly good for the customer compared with other world credit card markets. So it was ripe for someone to come in and give them a better deal, so the brand has translated very well to financial services.
What other products are you considering rolling out in Australia and how are you going about this process?
When we launched in May we said we were here to shake up Australian financial services and we’re starting with credit cards. I’d say if anything that’s even stronger now as the cards have been more successful than we expected. As we start to look at other products we realise there are other equally attractive opportunities out there. The question now, to be honest, is not so much if we launch another product, it’s when, or what order to do them in. Our focus is on being a mass market provider of retail financial services products so we will look for products where we can create simple, easy to understand, high value products, backed by top quality service, which is what we’re about. In terms of exactly what product we launch next and when, we don’t yet know at this stage but we’re looking at the whole market.
In the UK, Virgin provides life insurance, pensions, mortgages and loans. Will you introduce these products in Australia?
It’s really important to take the Australian market on its own merits; it would be a mistake to copy the UK and we didn’t do that for the credit card. Having said that, all the products that exist in the UK would definitely be worthwhile products in Australia. In particular, loans and mortgages on the credit side and on the other side, investment products and general insurance products are all interesting and we’ll be looking at them over the next two or three years.
We will launch any additional product in the same way we launched the credit card, that’s to say we’ll work out what we think the right product is to take to market. Once we work that out then we’ll seek a manufacturing partner to help us take it to market. We’re not actively talking to manufacturing partners at this point because we’re not at that stage but we’re not far off it.
Have these manufacturers been approaching you?
Yes, more than we can keep up with at the moment. I think the manufacturers have seen the success of the credit card and the value of the Virgin brand and are becoming increasingly interested in partnering with us, which is fantastic and that interest is a great sign to us that we will be able to reasonably easily grow our product suite beyond the credit card. We’re getting approaches from all sorts of financial institutions, both large and small, wanting to help us with the next product.
UBS said Virgin Money would not make a profit in 2003 or 2004. When do you expect to post a profit and how long are you giving yourself to achieve this?
Well, quite frankly the UBS report is wrong. Our ’03 results haven’t come out yet but when they do they’ll show that. We are profitable as a global business, and in Australia we’re cash flow positive and we’re reinvesting all of that cash back into developing the business. We’re not a big bank with shareholders insisting on profit and we’re not even looking to make a profit at this stage. But we are generating cash, which will be reinvested into doing the next thing. There were reports earlier in the year saying that we didn’t have a hope of making money and we’ve already proved those reports wrong.
What do the major domestic banks make of Virgin Money? What have you been hearing in the market place?
Quite honestly, I believe the major banks are in denial and it doesn’t cease to amaze me that we’ve still had no decent competitive response to our credit card. It blows my mind that we’re approaching 12 months and our competitors are allowing us to take market share and build up a customer base, which can only help us with the launch of the next product. So I can only assume that they’re in denial, that they don’t believe we’re here to stay, but we’re absolutely here to stay and the longer that attitude continues the happier we will be.
So why aren’t the majors responding to you?
Why they’re not responding I don’t know, but we’re delighted that they’re not. If they were to compare overseas markets then they would have to respond. If you track what’s happened in the UK over the last 10 years on credit cards, then we’ve really done to the market what happened 10 years ago in the UK. If you now go forward 10 years from that date in the UK, you’ll see a credit card market where annual fees don’t exist, where interest rates are really low, and the same thing you would assume needs to happen here. Given that we’ve launched, it will happen here.
The only question is: will we take all those customers or will someone else share them with us? I fully believe that within five to 10 years, annual fees on credit cards won’t exist in Australia. We’ve guaranteed that we will never do that. The amount of money banks must be pulling out of credit cards with interest rates at 18 percent and annual fees that have skyrocketed over the past two years is outrageous. But it just shows how low the competition has been in credit cards. It takes someone like us to come in and let consumers know they’re being ripped off.
The Virgin brand is obviously synonymous with Richard Branson. How much contact do you have with him?
He’s not hands on in terms of day to day management as there are some 250 Virgin businesses around the world and it couldn’t possibly work that way. Any managing director that’s not happy with 100 percent autonomy wouldn’t last at Virgin. Having said that, he’s incredibly excited by what we’re doing in Australia and does keep involved. He’s fully supportive of what we’ve done in the market so far and supportive of our ambitions to expand that through various products. Richard being Richard, he wants it all to happen as soon as possible but the great thing is that we all do as well.
What kind of team do you have at Virgin Money and how do you see that expanding in terms of numbers and expertise?
We have a small team; we’ve got around 30 people at the moment but that will grow as we expand our products. Our business development team is certainly growing quickly. We operate under what we call ‘brand and packager; model, which means we bring what we’re good at to the table: brand, approach to customers and customer service and marketing. We partner with what we call a manufacturer who provides the back office, the underwriting, the mass processing etc, which is something we don’t need to be good at as it doesn’t match our core competencies. By using that model we have a small, nimble, dynamic team.
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