Daily Mail: Nationwide forced to defend £50 takeover reward
My thanks to Patrick Tooher and Jane Denton for writing this article for the Daily Mail (online edition: This is Money).
It follows a longer post I wrote about the “Big Thank You” payment: The Big Nationwide “Thank You”: £50 for what and why?
You can read the article in full here: Nationwide forced to defend £50 takeover reward (17 March 2025)
Patrick and Jane quoted me as follows:
James Sherwin-Smith, who led the campaign for a vote and wants to join the Nationwide board, said the society should be more ‘upfront’ about how its reserves, which belong to members, are used.
‘Nationwide has a habit of doing something first, and then asking or ignoring members afterwards,’ he added.
‘This “thank you” payment is another example of why members should be more engaged, and their perspectives better represented,’ he said.
He also fears the final bill for buying and integrating Virgin Money could top £5billion.
The Big Nationwide “Thank You”: £50 for what and why?
Nationwide has announced this week the “Big Nationwide Thank You” – a £50 one-off payment to eligible members. This is entirely separate to the recent annual (but not guaranteed, or clearly defined) Fairer Share Payment.
This “thank you” payment is another example as to why members should be more engaged, and members’ perspectives better represented, at a board and senior management level. Members’ should be looking beyond the £50 windfall about to land in their account, and think about whether the figure is right, whether it could have been used in a better way (e.g. better mortgage rates), or should be kept in reserve for future needs given current economic uncertainty and the amounts being spent on the acquisition and integration of Virgin Money.
This is another example of why I am requesting that members nominate me to stand for election to the board of directors of the Nationwide Building Society, so that I can better represent member perspectives.
Why the extra one-off payment?
What is The Big Nationwide Thank You?
On 1 October 2024, we completed the purchase of Virgin Money, becoming an even stronger force in UK banking. This was made possible by the financial strength Nationwide members helped us build.
To say thank you, we’re giving over 12 million of our members £50 each as part of The Big Nationwide Thank You. Over £600 million in total.
What’s the running total for the Virgin Money acquisition?
In effect, Nationwide has now spent the following on the Virgin Money acquisition
- £2,900 million to buy Virgin Money shares from Richard Branson, former NAB (mostly Australian) shareholders, and current / previous managers (e.g. Debbie Crosbie, the Nationwide CEO who was the Virgin Money COO)
- £250 million, plus a further £15 million per year, to Richard Branson’s Virgin Group for the right to use the “Virgin Money” brand – which Nationwide expects to close down in due course
- £650 million capital injection into Clydesdale
- £100 million estimated in fees and expenses (advisors, bankers, external public relations, lawyers etc.)
- £600 million to members as a “thank you”
- Higher pay for management (see Resolutions 2 and 3 passed at the last AGM)
- A considerable amount of marketing spend (online and in print) to promote the “thank you” payment – perhaps in an effort to curry favour with news editors.
Plus, still to come: the costs of integration and restructuring the combined Nationwide Group at an estimated further £1,000 million.
So the cost of the Virgin Money acquisition, given the above, is approaching £5,500 million. Some of that amount might be funded out of future profits of the combined Nationwide Group. But the largest proportion is clearly being funded out of reserves, i.e. members’ equity in the business, as the deal was not financed by debt.
The Virgin Money deal was effectively a large transference of members equity to Richard Branson (via the Virgin Group), and Australian fund management customers, who held a large proportion of the Virgin Money plc stock following the demerger of the Clydesdale and Yorkshire Banking Group (CYBG) from National Australia Bank. And while Virgin Money plc shareholders were able to vote on the deal (to sell their shares at a 40% premium to market value), Nationwide members were blocked from a vote by the Nationwide board.
Thank you payment just raises more questions
I am pleased to see that Nationwide is listening to member feedback, noting the negative comments received from members excluded from the “fairer” share payments in the past. This one-off “thank you” payment is more equitable in it’s distribution to members: the “thank you” payments will be paid to the 70% of all members (12m out of the now 17m), unlike last year’s “fairer share” which reached only 25% of members (4m out of the then 16m).
I hope this is a sign that Nationwide are reconsidering the criteria for the currently annual (but not guaranteed or pre-defined) “fairer share” payment so more members participate in the future distribution of profits. However it’s possible that the implementation of the FCA Consumer Duty regime is driving these changes, after a high volume of complaints from ineligible members who didn’t receive “fairer share” payments.
A number of questions remain:
- Why is Nationwide doing this, and why now, given the economic climate and lower Group reserves given spending on the Virgi Money acquisition.
- Were members consulted? It’s clear people are being asked about it _after_ the event via the Member Voice platform.
- Do management have more certainty around future profits?
- Will the integration be shorter or cheaper than anticipated?
- Or is an effort to appease members ahead of breaking some bad news?
- Or a response to recent criticism about Nationwide increasing credit card interest rates at a time that Bank of England base rates are coming down?
It has been a long standing concern of mine (and others) that the integration of Nationwide and Virgin Money will be difficult, expensive and time-consuming. It is likely therefore that the quality of products and services delivered by the bigger Nationwide Group will suffer, as more management time is spend on integration rather than improvements to the core banking / society operations.
What about the alternatives?
Taking a step back, is making this payment the right mechanism to distribute “extra cash” i.e. pay “dividends” on members “shares” in the building society? Is now the right time to do that?
Making identical payments to eligible (some, not all) members, instead of setting better interest rates, is effectively a transfer of wealth from the most indebted customers (with bigger mortgages) or richer customers (with larger savings accounts) to customers with minimal balances, as eligible members are all receiving the same amount, despite different balances in their accounts.
Further, is a uniform £50 / £600 million total giveaway the right thing to do during a period of significant economic uncertainty? Would it have been wiser to keep this money in reserve?
Or should a building society be focused on offering better mortgage rates instead, during an ongoing cost of living crisis? Wouldn’t that have been a better use of the estimated £5.5 billion of members’ money spent on Virgin Money as per the above?
It is unclear how, or if, the Society has consulted upfront with members on how it is spending the society’s reserves (i.e. members’ equity). It has a habit of doing something first, and then asking / ignoring members afterwards (cf. see recent Member Voice below).
What we do know is that the Society believes it knows better than the membership (that it is supposed to serve, and who ultimately own the Society). This “Thank You” payment serves as yet another example of this, following the Society avoiding giving members a vote on the Virgin Money acquisition last year.
I’d be interested to hear what other members have to say. Comments are open below, or you can email me direct james@james4nationwide.co.uk (or see Contact page for more options).
Is Nationwide becoming more like a bank? A case study of credit card pricing
Disclaimer: Nothing herein is financial advice. Please do your own research and make your own, informed decisions when selecting a financial product or service.
I was asked by Simon English, ex City Editor of The Standard (and Nationwide member) last week what I thought of Nationwide building society’s decision to increase the interest rate on its credit cards for existing members.
He subsequently wrote an article that was published today (5 March 2025) in the Daily Mail: Nationwide accused of ‘rampant profiteering’ as it hikes credit card rates by up to 50%
Simon’s initial question was this:
“Why has my credit card interest rate gone up from 15.9% to 20.9% when Bank of England base rates are going down?”
The chart above shows how the average APR (Annual Percentage Rate) for new Nationwide credit card applications (aka “front book” customers – see longer explainer below) has changed over the last 15 years (the red line). There was a sudden increase a year ago at the start of 2024 to 24.9% – which is both the highest APR in the last 15 years, AND the highest average spread (the yellow line) over the Bank of England base rate (the blue line).
Two possible reasons for this increase by the Society are:
- The Bank of England base rate had steadily increased since early 2022 , so the spread between APR and base rates was being eroded, impacting profitability. Base rates have only been reduced a small amount since peaking in early 2024. Instead of slowing increasing rates, the Society waited and made one single big change (less costs to the Society of making incremental changes, less death by a thousand cuts for members).
- The Virgin Money acquisition was announced early 2024. A 24.9% APR is consistent with the Virgin Money front book pricing.
Trying to second guess which of these two factors weighed more heavily in the decision is hard to do from the outside. But the outcome is undeniable: instead of Virgin Money new applicants being offered a reduced rate to match Nationwide long term margins of c 16% i.e. extending the benefits of mutuality to Virgin Money customers (Virgin Money is no longer a shareholder owned bank), Nationwide member credit card rates have been increased to align with Virgin Money rates, prior to its acquisition by Nationwide Group.
This is why I called it out as “rampant profiteering”. It runs contrary to the narrative provided by Nationwide’s CEO and Chairman at the time of confirming the acquisition was proceeding:
“In March 2024, we confirmed our offer to buy Virgin Money. I believe this deal offers an exciting opportunity to create a more diverse business that delivers even more value to our members and will strengthen Nationwide financially. We continue to make good progress on our plans and expect to complete the acquisition in the fourth quarter of 2024, subject to regulatory approval.”
Debbie Crosbie, Chief Executive
“The acquisition of Virgin Money will bring the benefits of mutual ownership to more people in the UK and will enable us to provide further value to customers and members through its products and services.”
Kevin Parry, Chairman
The data for rate changes to existing credit card customers is harder to come by, as different customers signed up to different offers at different times, and it’s not transparent how these variable rates have been adjusted over time. But it looks like the 5% increase that impacted new customers 12 months ago, is only now being applied to existing customers.
Simon’s rate on his existing Nationwide card has just been increased from 15.9% to 20.9%, while new customers have to pay 24.9% currently. So more price rises may be “on the cards”. However Nationwide will also have balance the potential for extra margin vs losing customers / members altogether – the more the Society puts up the prices to increase profit margins, the more likely it is that customers / members will shop around and look for a better deal elsewhere.
For more detail about credit card pricing and the range offered by Nationwide over time, please see below.
I hadn’t looked at the Nationwide credit card offerings before, so I decided to do some research into the history of credit cards at Nationwide building society, and compare the Nationwide offers to those of the newly acquired Virgin Money, which is now part of the Nationwide Group.
Why do credit card offers have different rates?
The first thing to note is that banks and building societies issue different products (or offers) over time. Different considerations are taken into account when designing a credit card offer, and these change over time, e.g.
- the Bank of England base rates
- the risk that customers cant pay back their debt
- the market conditions i.e. competition and regulation
- the bank / building society’s costs
- the strategic / profitability outlook for the institution
So the credit card offer an existing customer signed up to 5 years ago is not necessarily going to be the same as the offer a new applicant receives today. This is often described as “front book” (i.e. new applicants) vs “back book” (i.e. existing customers) pricing, where “pricing” is a composite of the different parameters that make up the offer – not just the ‘headline’ interest rate or APR (Annual Percentage Rate), but also the fees involved, the size and duration of any introductory offers, any perks etc.
Also note that under FCA rules for financial promotions, credit card offers that carry a “Typical APR” means that the offer must be available to at least 66% of applicants. Why might some applicants get a different APR? Some financial institutions employ risk-based pricing i.e. those customers that are assessed as having “good credit” (more likely to repay their debts) get a better offer than other customers who are deemed less good / bad. And those with very bad credit may have their application rejected altogether.
Nationwide’s credit card offers have changed over time
Nationwide “front book” pricing (today)
If I log into my Nationwide app on my phone, click Products at the bottom, and then select Credit Cards – I am presented with two credit card offers:
- Member Credit Card – Balance Transfer (BT) Offer, and
- Member Credit Card – All Rounder (AR) Offer
These “front book” offers are very similar: both cards are issued by VISA and the card images look identical. They both carry a headline rate of “24.9% APR Representative (variable).” Both cards incur a 1.5% fee (minimum £5) if you’re planning on transferring your unpaid credit card balance from another card to Nationwide within 90 days of account opening. Transfers made after that date will be subject to a 2.4% fee (still a minimum £5).
The only notable differences are the in the introductory offers that each offers
- 0% [interest] on balance transfer offers for 18 months, 0% [interest] on purchases for 3 months, versus
- 0% [interest] on balance transfer offers for 15 months, 0% [interest] on purchases for 15 months.
So the first “BT” card is good if you’re planning on transferring a balance, as you get 18 months interest free (but you will pay a one-off balance transfer fee of 1.5% or 2.4% depending on when you make the transfer). But it’s not great if you’re planning on using the credit card to make lots of purchases after the month 3. If you don’t have a balance to transfer, or are going to be spending consistently on the card and not paying the full balance at the end of each month, the second “AR” may be a better “All Rounder” offer for you.
Virgin Money “front book” pricing (today)
It’s interesting to note that the headline “24.9% APR Representative (variable)” that Nationwide offers to members who want to apply for a credit card today, is the same headlone interest rate for the Virgin Money credit card offers, which mostly carry “Representative 24.9% APR (variable)”. The words are in the same order, but the meaning is the same.
The Virgin Money offers are slightly different to Nationwide’s however:
- Up to 29 months at 0% interest on balance transfers made in the first 60 days. Fees apply.
- 12 months at 0% interest on money transfers made in the first 60 days. Fees apply.
- 3 months at 0% interest on spending.
2) All Round offer doesn’t share the details of what the typical offer is – perhaps because it depends on your credit / risk assessment.
Comparing “front book” pricing of today vs. yesteryear
Thanks to the Wayback Machine Internet Archive, it’s possible to compile a list of the prior Nationwide credit card offers by looking back in time to what offers were promoted on Nationwide’s website. (Someone has also created a visual archive of some different debit and credit card designs.)
What this shows is that Nationwide has experimented quite a bit with different credit card offers over time:
- A single “gold card” covered both the BT and AR needs until 2011
- Two different offers existed from 2011 onwards to cater to BT and AR needs
- The “Select” card was introduced c. 2014 (this used to offer cashback on purchases)
- There were 5 different offers were available simultaneously in 2015: Select; Purchase offer; Long term BT; Select longest combined; Low fee BT
- The “Nationwide” card was introduced in 2016 to cater to BT and AR needs, alongside the Select card
- The Select card was withdrawn c 2020, and the BT and AR offers remained, as per today
This also allows a comparison of the average APR of the available credit card offers over time, and how these compare against the prevailing Bank of England base rate at that point in time.
The bottom line
This shows that over the last 15 years, today’s front book APR of 24.9% has reached an all time high.
It also shows that while BoE base rates have increased recently, and now fallen back a bit, the difference between front book pricing (measured by APR) vs the BoE base rate is now the largest spread at any point in the last 15 years (24.9% – 4.5% = 20.4%).