It has agreed to buy a small regional Yeovil-based bank called Church House Trust for £50m following approval from the Financial Services Authority.
It will use the bank's assets as a platform for developing Virgin Money-branded deposit accounts and mortgages online, and , possibly on the high street in future.
Jayne Anne Gadhia, chief executive of Virgin Money, said: "The financial crisis has tarnished the reputation of many UK banks. Virgin Money will provide a better, different form of banking to its customers, increasing competition in the sector."
Further acquisitions are expected to follow and Virgin Money, like Tesco, is believed to be interested in acquiring the "good bank" business of Northern Rock from the Government in the longer-term.
Last March Sir Richard Branson publicly stated Virgin Money's ambition to be in retail banking by 2011.
Branson said: "We are going to get back into the mortgage business and we will become a bank either by acquisition or by getting our own banking licence. You will see us become a consumer bank within the next couple of years."
Virgin Money had a joint banking venture with Royal Bank of Scotland between 1997 and 2001. Its existing business consists of credit and prepaid cards, insurance and investment products and it has more than 2.5 million customers.
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