Edinburgh and Newcastle-based Virgin Money said it will enter the banking market for small and medium-sized enterprises (SMEs) starting with a deposit account in January 2018 with £5 billion of SME deposits targeted within five years of launch.

The challenger bank will also introduce a new digital personal current account with the same target of £5 billion of customer deposits within five years of launch.

The plans were unveiled in a capital markets update by Virgin Money in which it also said it expects its share of gross lending in the UK mortgage market this year to be at the lower end of its previously guided range of 3% to 3.5% and that it anticipates its banking net interest margin to fall to between 165 and 170 basis points in 2018.

Virgin Money shares fell about 5%.

Virgin Money CEO Jayne-Anne Gadhia said: “To realise our vision for the future, we are building a differentiated, market-leading, data-driven digital bank that will be capable of meeting individual customers’ tailored needs and provide significantly more than the functionality of a current account.

“We aim to increase our customer numbers by over 50 per cent from the current 3.3 million and believe that is an achievable target given the potential to access and attract up to 19 million UK customers across the Virgin Group.

“Traditional banks are investing in digital transformation but are burdened by legacy systems; whilst digital start-ups currently lack the customer base to disrupt the sector on any significant scale …

“We are also delighted to announce the start of our journey into SME banking and we will be launching a new SME savings account in January 2018.

“This will enable us to start developing relationships with business customers and lay the foundations for potential broader future development in this attractive, but poorly served market. 

“We start the next phase of our evolution from a very strong position. We are proud of what Virgin Money has achieved since listing in 2014.

“We have scale positions in our core markets. Broadening our customer reach through our new digital and SME businesses will transform our market presence.

“We believe they will double our access to UK retail banking revenues. We will improve the depth of individual customer relationships and expect higher product penetration.

“We expect to capture around £10 billion of deposits from new sources through these new initiatives within five years from launch.”