Virgin Money

This morning CYBG confirmed that it had reached a £1.7bn deal with Virgin Money to create a new challenger bank to the big four of HSBC, Barclays, Lloyds and RBS.

While some have suggested that the terms of the deal aren’t exactly generous I think the deal is less about the terms than whether it's a good fit for the two banks. On their own both banks are likely to struggle for market share while together they are a decent fit, and will probably be more durable in terms of competing on the same playing field.

There isn't much overlap in terms of business strengths with Virgin already having a strong digital presence as well as having a decent presence in mortgages and credit cards, having bought Northern Rock, while Clydesdale Yorkshire is strong in terms of current accounts and personal banking, though there will be some job losses.

While it will certainly help competition in the UK banking market which has suffered to some extent from a lack of competition, it’s unlikely they will make much of a dent in terms of eroding the market share of the big four.

Another problem the two businesses will face as TSB will testify will be integrating two different IT systems without too many hiccups, which will probably mean that consumers won’t see too much in the way of benefits for quite some time.

Furthermore the deal seems more about cementing the combined banks longer term longevity and cross-selling across their existing legacy markets, than with embracing a more technological approach as banking services become more app based, as on-line payment apps like Apple Pay and Revolut gain in popularity.

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