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fd fd TM (First Direct) : Branchless Banking Group 2B FT 2005 Simone Huijs / Suraj Basnet / Ken Kodaka / Eugene Kolesnikov / Joan Moreau / Piercarlo Oddone Rotterdam School of Management Erasmus Graduate School of Business

Agenda 1.Case summary 2.Business model 3.Competitive advantages 4.Current Challenge (1996) 5.Strategic Recommendations 6.Case update

Case summary 1988 : Market trend : Downsizing and cost reduction Midland Bank was the 4 th largest bank in UK A significant proportion of customers were reluctant to visit branch offices, dissatisfied with banking hours 1989 : Starting of First Direct, usin g Midland network Telephone banking, opened 7/7, 24/24, Branchless Characteristics : No differentiation in products, but only in service Rivalry in B2C banking market 1989 – 1996 : Fast growth Fast consistent growth Trained experienced employees in telephone services High Quality and Reliable image

Business model PEST Analysis Political Deregulation in banking ↓ Many New entrantsEconomic Over capacity Downsizing ↓ Low profitability Social More wealthy people Increased mobility Increased demand for better servicesTechnology Improved computing Automation Personal computer Improved telecoms

Business model Distance direct banking Low cost 24/7 operation Staff & Technology Personalizedefficient friendly service 24/7remoteconvenienceAttractivebankingproducts Customers Company

Business model Sustainability More customers Investment in training Commitment culture Prominent reputation and brand Image Revenue growth Providing high quality service

Competitive advantages -> Value Services: Availability (anywhere / anytime) Personalized, friendly, and high quality Responsiveness - Less interface Products: Free or lower fees for financial products Customers Value Value Speed Company Competitors Cost Speed

Competitive advantages -> Cost By reducing process time New technology (ACD, Database) Competent staff (Training system) By office Low rental office fee Smart use of office space Sharing infra with HSBC Customers Value Speed Company Competitors Cost Cost Speed

Competitive advantages -> Speed First mover advantage Culture of continuous improvement Short time marketing of new products Customers Speed Value Speed Company Competitors Speed Cost Speed

Current challenges (1996) 5 forces analysis Bargaining power of buyers + Many banks offer remote services Threat of new entrants +Low capital requirements +No legal or patent barriers Threat of Substitutes + Internet Banking + Increased experiences in remote services Bargaining power of suppliers -Many IT providers -Market deregulation Industry rivalry +Many competing banks and other companies

Current challenges (1996) Segmentation analysis Age Social status High Low Big 4 Banks First Direct Potential Stretch Area

Current challenges (1996) SWOT analysis Strengths Brand image Experience and know-how Competent staff -Prominent training program Weaknesses Fast growth : Undermining company culture and consistency in services No diversification in its distribution channel Opportunities New remote technology – internet Additional financial products Improve advertising approach Potential to expand customer base Threats Increased competition New substitutes based on internet Competitors’ use of technology More sophisticated customers

Need for person to person communication remains There competitive advantage – strong brand image in telephone banking (Base Analysis: SWOT, Value-Speed-Cost Analysis) Maintain current business model and its superior service level Strategic recommendations

Increase service value for existing customers and attract new customers that use computers (Base Analysis: SWOT, 5forces) Introduce online banking

Strategic recommendations Potential 10 million customers in UK Existing infrastructure for economies of scale Proven services to attract conservative customers (Base Analysis: SWOT, Segmentation analysis, 5 forces) Aggressive customer acquisition in UK

Strategic recommendations For Students Offer student loans, health insurance, personal liability For elder people Saving funds for grandchildren, life insurance Expand range of financial products to attract new target customers

Case update FD today Grown by 56% to 1 Million of customers High customer satisfaction (85%) Additional channels – internet and mobile phone Increasing range of financial products 10,000 new customers every month

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