Johannesburg - Richard Branson, the flamboyant British billionaire, yesterday expanded his Virgin brand in South Africa, adding a low-cost credit card to the cellphones, gyms and planes that already carry his distinctive red and white logo here.
Virgin Money South Africa, a R240 million 50-50 joint venture with Absa, would introduce Virgin-branded credit cards. Its launch comes a few days after the entry of Virgin Mobile South Africa, a joint venture with Cell C.
Branson said Virgin Money SA would help shake up the industry, whose credit card charges had, he claimed, "ripped off" consumers to the tune of R1.5 billion.
Branson said South African credit card holders had gone for long without choice and had to pay for the privileges that went with the available credit cards. He said the South African banking industry had been unfriendly to its clients.
Virgin Money would help fill the client service gap that incumbent institutions had long neglected.
He likened the huge charges incurred by consumers who used credit cards to a beast.
South African banks revenues from fees related to the payment system have recently come under scrutiny of the competition commission.
According to research released by the commission, there was no transparent link between operating costs associated with payment transactions and charges levied by banks. It said bank charges had more to do with the banks' market power than the cost of the payment system.
While it had been difficult to break into the industry, Branson said Virgin had approached several South African banks and Absa emerged as the most "enthusiastic" potential partner.
John Maxwell, Virgin Money SA's managing director, said it would spend up to R50 million in the first year to build up a client base.
It would target 130 000 cards in its first year and build this to 500 000 cards over five years. The company would roll out mortgage lending before the end of this year and would expand into areas where significant margins exist, with the intention of passing some of those to consumers.
Branson said the fact that up to 80 000 people were getting debt default judgments was a worrying trend, and reflected the need for responsible lending. South African debt levels have soared to 65 percent of disposable income, prompting the Reserve Bank to hike interest rates to slow rising debt.
Branson added that Virgin Money would not work at making huge profits but would target "reasonable returns".
Louis von Zeuner of Absa said that while Virgin was a competitor, the brand it offered would be welcomed by the younger generation. He said, however, that some cannibalisation of Absa credit card products could be expected.
Meanwhile, Visa International said the use of cards bearing its brand in South Africa had increased 16 percent to $500 million (R3.7 billion). The value of global retail transactions in which Visa cards were used rose 24 percent to more than $12.5 billion in the year to March. The number of Visa cards in South Africa rose 6.8 percent to 14 million.