The ten year profit-sharing contract will see Citibank the retail arm of global investment bank Citi provide funding, infrastructure and banking networks for the new joint venture.
Virgin Money became a major player in Australia five years ago when it linked with Westpac for a low-cost credit card that attracted more than 750,000 accounts, which Westpac inherited when the contract ended a year ago.
According to the Australian Citibank beat the National Australia Bank, which has a larger credit card market share, for the new Virgin deal.
Ray Gori Citibank's chief executive has set a target of overtaking NAB in the next three years by increasing its stake in the credit card market from 8.6 per cent to above 14 per cent.
Mr. Gori stated that they wanted to break into the top four and take a market share of 13 - 14 per cent.
The first Citibank-Virgin Credit Card is set for July next year and then online retail savings and deposit accounts will be rolled out. The accounts will be offered on the internet only or through Citibank's existing call centres, with no branch access.
The joint venture will also develop a Virgin Blue Credit Card linked to the budget airline with reward points that will compete directly with the Qantas associated credit cards.
Citibank is hoping to lure 500,000 customers to the new credit cards in the medium term. It also intends to develop Virgin-branded mortgages to compete with the Big Four banks, which dominates new home loans.