Virgin Money takes two steps forward, one step back

Virgin Money Australia yesterday kicked off what chief executive Matt Baxby called phase one of its strategic alliance with Citibank, when it launched an online savings account and two credit cards.

Surprisingly, it is offering a card with no annual fee, no rewards (it does provide access to "Virgin Family offers") and a lowish rate that is remarkably similar to the card that performed so poorly that former card partner Westpac broke up its joint venture with Virgin Money in 2008.

The original Virgin credit card, launched in 2003, attracted more than half a million customers. Because it had no annual fee people were happy to take it but because it had no rewards program (it had a shopping voucher program called Mates Rates) it was seldom the first card that came out of the wallet.

It was seen in the market as a handy back-up card, not a primary card, and spend was low.

Baxby rejected the suggestion that the original card was a failure. He said there was still demand for a "value seeker" card.

He said that this time around Virgin Money had a more complete offering, with the addition of a reward card that offers access to Virgin Blue's Velocity program.

The Virgin Flyer credit card has a $99 annual fee, an offer of one Velocity point per dollar spent and a purchase rate of 20.99 per cent.

Points can be redeemed for flights on Virgin Blue, Pacific Blue, V Australia and international partners. The program has no blackout periods and points can be used for any seat any time. Other redemption options include car hire, accommodation and gift cards.

The card also comes with a two for one offer - buy one Virgin Blue seat and get a second seat free.

Velocity has two million Australian members, providing a big target market for the Virgin Flyer card.

The online savings account is guaranteed to attract attention with a four-month introductory rate of 6.75 per cent, which is 24 basis points higher than UBank's market-leading bonus rate offer of 6.51 per cent.

The base rate on Virgin Saver is a respectable 5.35 per cent. The account has no fees, no minimum balance requirement and unlimited transactions (to a linked transaction account).

Citibank chief executive Roy Gori said the partners were still working on their options for phase two but a mortgage and a transaction account were in the mix. No date has been set for the next round of product launches.

The deal forming the strategic alliance between the two organisations is for 10 years. Baxby said the long-term nature of the partnership and what he believes is a good alignment of interests will ensure a good working relationship