Banking

South Africans are talking about Richard Branson in terms of eras � Before Branson and After Branson.

The Branson business antenna picked up South Africans� growing outrage at the exorbitant banking and cellphone charges they suffer, and spied an opportunity.

He rode in with both guns blazing, promising to clean up a territory gone to the dogs, and to run the perceived bad guys out of town � in this case the South African financial services (especially the retail banks) and the cellular telephone companies.

He�d arrived, he said, to clean up a region where honest folks were being �fleeced and ripped off�. And to prove he meant business, he unpacked a R120mn (about $16.3mn) war chest with which to confront the opposition.

Before Branson, the South African territory was at the mercy of �greedy and bloated� bank and �rip-off� cellphone networks.

After Branson is a new dawn that has South Africans excited with a Virgin Money financial service, starting with a credit card, that will lop much of the transaction and other fees South Africans are accustomed to paying and a cellphone network provider that demonstrates that �talk can be cheaper�.

Some, however, suggest that Branson�s arrows might not fly as straight as Robin Hood�s, and that his Marshall�s star might be a tad tarnished.

As South Africa battles with a crippling current account deficit, a culture of non-saving and profligacy, and balance of payments deeply in the red because of a national predilection for imports, the last thing South Africa needs now is cheaper credit, they say. Unlike Robin Hood, they maintain, Sir Richard is pouncing on an embattled economy and enriching the rich (himself foremost) at the expense of the hapless credit-hungry and cellphone-crazy poor.

And the Branson hype comes at a time when his airline, Virgin Atlantic, and British Airways are being investigated by the UK Office of Fair Trading and the US justice department over alleged collusion.

Be that as it may, Branson spotted a vast opportunity where disgruntled and overcharged South African bank and cellphone customers were ripe for the plucking. Branson�s carefully contrived image of the kindly cavalier, with a devil-may-care penchant for the swashbuckle, has endeared him to the ordinary man, and his Virgin brand is up there with Coke and McDonald�s as the world�s best-known and fair-deal enshrined.

South Africa�s biggest bank, Absa, and one of the country�s three cellphone service providers, Cell C, were amongst the companies he branded as �bloated, greedy and rip-offs�, but that didn�t stop them from hopping into bed with him and providing the essential frameworks he needed for quick, decisive and cost-effective entry into his chosen sectors.

John Maxwell, MD of Virgin Money South Africa, says credit cards are just the beginning and the company will be on the prowl for other margin-rich areas.

Virgin estimates that credit card consumers are being prejudiced by the banks by around R1,5bn ($204mn) a year. The intention is to pass a portion of these proceeds on to the customer; they�re so high, in Branson�s view, there�s plenty of fat to go around for both Virgin and its clients.

Personal Finance crusader, Bruce Cameron, points out that some of the fees attached to the Virgin cards are not cheaper than those charged by some of the banks. The cost depends on the service and the amount of money required.

�But, overall,� he observes, �the Virgin package � with no annual fees and higher interest rates for credit balances (5%) and lower interest charges on debit balances � seems better than anything else on offer. (South Africa is one of the few countries where banks get away with charging an annual fee.)

Another iniquity for South Africans is that banks charge R100 a year for their clients to be loyal to them. �There is no loyalty fee for Virgin�s programme, but the benefits are immediate,� personal wealth columnist Maya Fisher-French points out, including 10 percent off Virgin Atlantic air fares, 10 percent off a cellphone bought through Virgin Mobile, amongst other offers. Virgin Money also pays 5 percent interest on positive credit card balances, against the South African banks� rate of 2,5 percent.

�Of course, if you keep your cash in your Virgin Money credit card account, Virgin is not going to make a lot of money out of you,� says Fisher-French. �But it is no doubt banking on South Africa�s appalling savings rate and heady consumerism to bring in the income.�

The way Branson operates is multi-faceted and does not always include cost-cutting.

His famous big-venture start-up, Virgin Atlantic, exploited the crest of �experience marketing�, a trendy new-wave sales-maker in which industry interlopers offered the same fare as the competition but promised a more fulfilling and stimulating ride � limousines to take business and first class passengers to the airport and home again, in-flight masseurs, manicurists, sleeper seats, snappy entertainment channels. Few passengers remark on SAA�s livery or the uniforms of Air Zambia�s cabin crew, but they do extol the exhilaration of the Virgin Atlantic experience, and word-of-mouth is advertising�s most powerful medium. In fact, coffee shops pioneered the experience marketing trend by installing armchairs, good music, exotic brews, pleasing ambience. Give someone a good experience and price does not matter.

The quintessential showman

Branson considers that he is Virgin�s biggest brand. He concedes that classical advertising has it place, but that he gets more media miles if he indulges in crazy stunts. �We found we get more coverage if I�m willing to jump out of planes or cross oceans in balloons or whatever,� he says. �Our employees are going to shake up both the mobile phone and financial industries, and save Africans millions of rands. The least I can do is make sure people know about it, and if it means my stomach churning a little bit before jumping off a building, then I�ll do it.�

Jumps out of planes

Branson�s South African raid is something else entirely. This time it�s all about taking away from the rich and dividing up the spoils between Branson�s merry men and the consumer.

It comes at a time when the Competition Commission, consumer bodies and financial services regulators are coming down heavily on the cosy, cartel-like fee structures levied by the incumbent banking industry.

Notes Cameron: �It may seem a hassle to change cards or accounts, but you will save yourself a lot of money in charges over the years. If you do decide to change to Virgin, tell your current credit card company the reason why you�re leaving and ask why it cannot match or beat the Virgin fees. This way, the banks will finally get the message.�

Will the same apply to Vodacom and MTN, South Africa�s cellphone network providers (Cell-C is out of the equation now that it has thrown its lot in with Virgin) Branson describes as �rip-offs� who need a good dose of real competition thrown at them.

Virgin Mobile�s South African CEO is a dyed-in-the-wool Virgin man, Malawi-born Sajeed Sacranie. He believes that plain language will undo South Africa�s existing mobile phone operators that use a maze of tariffs, contracts and handset subsidies to camouflage actual costs.

�We believe one of the primary areas where there is a huge need is the fact that consumers are currently locked into contracts where they are offered pretty bad service, uncompetitive rates and they think they�re getting a free phone, but they�re actually paying for it through the nose,� says Sacranie. Apart from tossing out the marketing and contractual gobbledegook, Virgin will add value with per-second billing.

�You�ll be billed per second from the first second,� he says, �which means we never steal your seconds. We don�t round up without you knowing it. A huge number of packages in this market are based on a per-minute or per-half minute round up which means consumers end up paying 20 percent more than they should. It can add up to 50 percent depending on the types of calls they make.�

Sacranie says pre-paid customers get the worst deal. �They pay in advance and yet are charged the highest rate. We�ve changed that. Pre-pay customers will pay the same rate as the post-payers.�

Virgin Mobile has just three packages: a commitment to a R500 monthly spend, a R100 monthly spend and a no-commitment tariff option. The new service is targeting a 10 percent South African market share in five years.

How concerned are existing South African banking and cellphone companies at the Branson assault?

Well, they�re not actually quivering in their boots, says business analyst Bruce Whitfield, and it doesn�t seem that they�re radically amending the way they do business.

�Either they haven�t understood the impact the introduction of the Virgin brand will have on the South African market, or the products Virgin is offering are not that competitive,� Whitfield proposes.

Growth targets in a credit-hungry South African market are realistic with 130�000 cards targeted for year one with up to 500�000 Virgin branded cards in the local market by year five.

�It was one of the best banking product launches in South African history,� says Peter Wharton Hood, CEO of Personal and Business Banking at Standard Bank, at the same time observing that the Virgin offer is not sufficiently radical to force a sea change in the way the banks run their businesses.

MTN and Vodacom are exhibiting signs of nervousness. MTN announced recently that it intends reducing its prepaid tariff by as much as 40 percent, while Vodacom countered the Branson blitz with full-page newspaper ads that insisted Vodacom�s rates are South Africa�s cheapest.

It might be unfair to pick on the banking and cellphone industries as fleecers. �They are not alone,� says the Financial Mail. �The sad fact is that without someone to spur (the market) into action, business has little reason to put consumers� interests first.�

Perhaps Branson will get that job done.

High flyer

Branson The Entrepreneur emerged at university in 1968 with his publication of The Student magazine and became further entrenched three years later when he opened his first Virgin Record shop in London�s Oxford Street, followed in 1972 by the launching of the Virgin record label featuring Mike Oldfield�s Tubular Bells, one of the biggest hits of the decade. In 1983 Virgin Vision is born to distribute films and videos and a year later Virgin Atlantic Airways is launched followed the same year with the introduction of the 24-hour satellite Virgin Music Channel.

Also in 1984 Virgin Atlantic Voyager tries to win the Blue Riband for the fastest ship to cross the Atlantic, but sinks off the cost of Ireland. In 1985 Virgin Holidays is formed while the Virgin Group lists on the London Stock Exchange the following year.

Branson and Swedish balloonist Per Lindstrand try to cross the Atlantic in a hot air balloon, but end up in the Irish Sea; they are more successful in 1989. Two years later they crossed the Pacific Ocean by hot-air balloon. In 1992 Virgin Music Group is sold to Thorn EMI for $1bn. 1996 sees London and Continental Railways, in which Virgin has a stake, win a contract to build the Channel Tunnel.

In 1999 Virgin enters the South African market when Nelson Mandela phones Branson and asks him to rescue the faltering, 80-outlet Health and Racquet health club; two years later the business is renamed Virgin Active and becomes the 4th biggest health and fitness group in the world. By 2002 Virgin Money has 1.6m customers, and in 2004 Virgin Mobile lists on the London Stock Exchange. In 2006, Virgin Money and Virgin Mobile are launched in South Africa.

This article was first published in Business in Africa Magazine (International Edition), August 2006. To subscribe click here