Believing in brands, not banks

The reports that Virgin is looking to follow Tesco into on-line retail banking ( www.brandrepublic.com today) should be no surprise, unless perhaps that it has taken so long. The main retail bank brands are currently weakened by their perceived parts in the credit crisis (see "Banking on brands" below. People need to have a bank, but probably see them as all being as to a greater or lesser degree guilty of having taken excess risks, which would account for switching not being higher. So now is the right time for these two of the most trusted brands in Britain to offer banking.

Of course, not all trusted brands are trusted in ways that would enable them to successfully offer retail banking services - Cadbury is trusted for its chocolate, and Head & Shoulders for haircare, but we don't typically judge our banks on sweetness nor lack of dandruff. However, there are levels of generic trust that really strong brands generate that do transcend categories, as Tesco has proved by moving across so many, even becoming the most trusted petrol retailer in the 2009 Readers Digest survey of Britain's most trusted brands, ahead of BP and Shell.

I remember being very sceptical (and very wrong) some 20 years ago about Virgin going into into Financial Services. Rowan Gormley was explaining to me over lunch how he had made the simple connection that the Virgin brand was a great asset because people trusted it - so it had real potential moving into markets where people didn't trust the existing brands, such as insurance. Virgin Direct was born, which became Virgin Money, and is still a success.

And people who trust brands generally believe that they are getting something good, even when they can't easily make comparisons. Virgin Mobile used to get considerably better customer ratings for its mobile network than T-Mobile did for its network. But they were both operating on the same network.

Sainsbury's Bank similarly used to benefit from a positive brand halo effect, in that it got significantly better customer satisfaction scores for its call centre service than Bank of Scotland did - for the same call centre. So we can expect customers to move to brands they trust, to expect to get better, more reliable services, and in the absence of information to the contrary, to believe that they are getting better service.

The owners of the leading brands generally understand brand risk, and the importance to all their businesses of not letting brand-loyal customers down. The FSA should recognise this, and issue them full banking licences as soon as possible, so that people can make real choices between truly different brands.