ranchless Banking First Direct : B ranchless Banking

Branchless Banking First Direct : Branchless Banking

Customers growth trend

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

Product 1. Checking accounts 2. Debit/credit cards 3. Savings and investments 4. Mortgages 5. Loans 6. Insurances 7. Travel services Product analysis Core Services SPEED COST VALUE Support Services

Promotion 1. Multi-media approach 2. Hassle-free focus 3. Word-of-mouth Product analysis

Place 1. Telephone service 2. Regular mail (physical forms, prospective customers) Product analysis

Price 1. Visa credit card: free of charge 2. Interest free overdraft 3. Non transfer costs inter-accounts Product analysis

Strength Weakness ・ 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

Threat Opportunity ・ 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 Banking Customer First Direct Value/Speed 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 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?

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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

First Direct Customers British Bank Customers Customer profile

British Bank Customers First Direct’s customers % 53% years old British Bank Customers First 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 best service 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 considering customers’ 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 banking and 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 which focuses on long-term good value on those products which matter. We are independent in our provision of money building products, in order to offer the best from the market”. Brand statement