First Direct:

Branchless Bankingranchless Banking

First Direct:

Branchless BankingBranchless Banking

Customers growth trend

0

500,000

1,000,000

1990 1992 1994 1996

total num of customerstotal num of accounts

1. First Direct must continue to be low cost

2. First Direct must individualize the manufacturing process and treat customers as individual

3. First Direct must continue to build a strong brand in order to trust with its cutomers

Three major challenges

BuyersSuppliers

Potential Entrants

Complements

Substitute

Industry analysis: Porter’s Five forces

Rivalry

ProductProduct

1. Checking accounts2. Debit/credit cards

3. Savings and investments4. Mortgages5. Loans6. Insurances7. Travel services

Product analysis

Core

Services

SPEED

COST

VALUE

Support

Services

0

500,000

1,000,000

1990 1992 1994 1996

total num of customerstotal num of accountsPromotionPromotion

1. Multi-media approach

2. Hassle-free focus

3. Word-of-mouth

Product analysis

PlacePlace

1. Telephone service

2. Regular mail (physical forms, prospective customers)

Product analysis

PricePrice

1. Visa credit card: free of charge

2. Interest free overdraft

3. Non transfer costs inter-accounts

Product analysis

StrengthStrength WeaknessWeakness

・ No branches ・ Customer oriented (24 hour) ・ Creation and innovation ・ High customer satisfaction (87%) ・ High referral rate (85%) ・ Focus on high disposal income

customers ・ Effective use of Technology ・ Strong brand awareness ・ Strong parent company leverage ・ Good ROE ( >25%) ・ Low Cost ・ Low employee turnover

・ No branches・ No online service・ No face to face contact

Product analysis

Internal environment

ThreatThreatOpportunityOpportunity

・　 Introduce insurance-related products

・ Product mixed strategy ・ Expand into HSBC customer base ・ Introduce branchless banking to

other proper countries ・ Expend to other market segments ・ Offer on-line service (internet) ・ Enter other non-financial

products ・ Travel/Hotel/Car Rental

・ Increasing competition in personal (branchless) banking

・ Growth can undermine service levels

・ Difficult to recruit good staff

External environment

Product analysis

First Direct should:

• Utilize emerging technologies for banking purposes

• Keep focus on the high value, high-tech customer segment

• Lower costs by outsourcing where feasible

• Maintain a highly-skilled, engaging workforce

Strategic recommendations

Implementation implications

Competitors

BankingCustomer

First Direct

Valu

e/Sp

eed Value/S

peed

Cost/Speed

• Offering Internet banking will provide speed of delivery

• Multiple banking channels increases customer value proposition

• High-quality services will increase service value

• Un-manned channels will be of lower cost than manned ones

• Automated services will provide lower response times and thus increased speed

• Outsourcing provides lower costs

Financial implications

• Investments must be made for new channels

• The capital need for making investments must be investigated

• The profitability of new channels cannot at present be accurately estimated

Implementation implications

Human Resources implications

• No immediate need for changes in the workforce size

• Possible need for structural changes

• Banking Representatives must undergo training in how to operate new banking channels

Implementation implications

Operational implications

• A shift in banking channels will bring with it a shift in operational activities

• Operational procedures must be developed for the new channel(s)

• Profitability of new channels cannot be accurately estimated at present

Implementation implications

Update-what happened?

• Offer Internet banking as well as message banking

• More than one million customers

• Employment 3,600 people

- Over 600,000 customers bank electronically

- 420,000 internet banking customers

- 180,000 using the mobile phone banking

- 55% of all customer contacts are electronic

- 450,000 SMS messages are sent each week

UPDATE

Questions?

Thank you!

Back up slides

• First branchless bank , established in 1989

• Providing all service over the telephone

• 24/7/365 accessibility

• Focus on personal contact with customers through

Well-trained banking representatives A sophisticated customer tracking system

Introduction

15-19

20-24

25-34

35-44

45-54

55-64

65

First Direct Customers

British Bank Customers

Customer profile

Customer profile

British Bank CustomersFirst Direct’s customers

25 - 34

35 - 44

45 - 54

55 - 64

25 - 34 18 - 24

65+

25 - 34

35 - 44

45 - 54

87% 53%

25 - 54 years old

British Bank CustomersFirst Direct’s customers

1. High target• Objective of one million customers by the year 2000• Would FD need to employ more resources?

2. Opportunities for new channels• “about 50% of its customers owned personal computers –twice the market average”• follow a customer-oriented strategy

3. Difficulty for differentiation• “Only one person in five could distinguish between the

services offered by the various banks”• Leverageable database

Findings

4. High rejection rate• High rejection rate (50%)• High account-opening rate (97%) by accepted applicants• Strict criteria for new customers seem an efficient policy• The costs,either directly or in the form of opportunity costs for maintaining zero-balanced or inactive accounts

5. Support potential from • “First Direct would benefit from its parent’s massive technology investments…”• The buying of Midland Bank by HSBC in 1992 gave FD additional support to its operations • New impulse for its services

Findings

First direct is the UK’s most recommended bank.

“We have earned and maintained our reputation as the bank that offers the bestservice because we believe in both our people and the rapport they have with our customers, and because we are single minded in our approach to consideringcustomers’ financial needs as a whole.Our market is busy professionals, who are confident users of financial services and early adopters of new ideas and technology. They are building income, rather than having wealth, but whilst making money is important to them, many feel they have better things to do than manage it carefully. They will shop around, but essentially are looking for financial brands to trust. Whilst many have both the motivation and the reasons to move to a better bank like first direct, perception of a difficult switching process often prevents them from doing so. First direct makes it easy for people to switch to us, and over a million have already done so.First direct is a trusted, challenger brand. We challenge accepted norms in bankingand attitudes to money, and continually innovate our services and products, to reflect the changing needs of our customers. We have built trust through openness, consistency and service quality, together with a price promise whichfocuses on long-term good value on those products which matter. We are independentin our provision of money building products, in order to offer the best from the market”.

Brand statement