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Bank of Queensland to buy Virgin Money

Bank of Queensland (ASX: BOQ) has today announced plans to acquire Virgin Money Australia, as it expands its distribution footprint.

BOQ is spending $40 million, including $30 million in BOQ shares, to acquire the business, which gives the bank exclusive use of the Virgin Money brand for up to 40 years, in return for an ongoing royalty.

BOQ says the acquisition will allow it to tap into complementary customer and market segments, and give the bank an opportunity to distribute BOQ banking products marketed under the Virgin Money brand. Virgin Money has over 150,000 customers in segments that are untouched by BOQ, as well as strong online capability.

Initially the licence will be for retail products including credit cards, life insurance, general insurance and superannuation, but has provisions to expand into corporate financial services.

Much like the big four banks and their multi-brand strategy, BOQ expects to sell its products to customers who would be unlikely to walk into one of its branches. National Australia Bank (ASX: NAB) is heavily promoting its online offering through UBank, while Commonwealth Bank (ASX: CBA) owns BankWest, and Westpac Banking Corporation (ASX: WBC) offers its products through a range of brands including St George, Bank of Melbourne and RAMS.

Multi-branding is a strategy not just employed in the banking sector. Qantas offers flights through Jetstar, while Virgin wants to follow a similar path with its planned 60% stake in Tiger Australia. For many companies it makes sense to market a differentiated offering targeted at different consumer groups under a sub brand.

Foolish takeaway

Several consumer groups have argued that the practice of multi-branding creates a perception of competition, which is actually false. Building societies and other financial institutions have called for greater disclosure of the ownership of bank sub-brands, and not buried in the fine print.

Consumers take heed. That financial product you just signed up for could very well be from a big-four bank.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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