AGENDA: First Direct faces up to rivals - A decade after it revolutionised banking, First Direct is facing up to a market increasingly being shaped by new power-brand entrants and product-savvy consumers. Steve Bell reports

Not content with allowing their customers to bank by phone or computer, First Direct has now gone a step further. From the beginning of next year, the bank is to offer consumers the chance to bank via a Cellnet mobile phone.

Not content with allowing their customers to bank by phone or

computer, First Direct has now gone a step further. From the beginning

of next year, the bank is to offer consumers the chance to bank via a

Cellnet mobile phone.



Initially customers can get text messages about account details such as

balances and recent transactions; in time the service will be upgraded

to offer interactive services.



First Direct is not the first bank to offer banking via a mobile phone -

the Co-operative Bank pioneered it earlier this year, followed by Lloyds

TSB in August.



But the move is a clear signal that First Direct wants to remain at the

forefront of the banking revolution it started nine years ago. At the

beginning of the year it introduced PC banking and now has 60,000

customers using the service. In the future pagers and web TVs will be

used and a service via digital television is a ’positive certainty’,

says Peter Simpson, First Direct’s commercial manager.



Mass market target



By positioning itself as an organisation at the cutting edge of service

provision, it is aiming to have two million customers in ten years’

time, up from its current 850,000. Since launch, in October 1989, it has

experienced a growth rate of 100,000 new customers a year.



However, over the next ten years it won’t have the field to itself. When

it launched it had no direct competition, and it created its own

position.



But given the parlous state of retail banking and customer relations -

customers treated shabbily and little differentiation between services -

it didn’t really have to try too hard.



In the next ten years, the rigour of its brand is likely to be severely

tested. There are strong brands gaining a toehold in the financial

service sector, such as Tesco, Sainsbury’s and Safeway.



The strength of their brand guarantees publicity and an existing

customer base that reinforces the attraction. A First Direct insider

concedes supermarkets will be a ’strong threat if they push current

accounts in a bigger way’.



There will be other entrants too. A report by Deloitte & Touche

Consulting Group predicts that ’ten years from now, (there will be) a

massive increase in the number of banking transactions handled from home

or office via the internet’.



The survey revealed that 83% of senior executives polled in the world’s

leading banks believed the threat would come from new entrants such as

retailers and even software companies.



Even telecoms companies such as Orange have asked consumers how they

would feel about the phone brand moving into banking.



First Direct’s solution is to continue building on the brand values it

established at launch - efficiency and simplicity led by the needs of

customers.



Simpson likens its strategy to the application of a scientific formula:

’Branding strategy is very strictly controlled, marketing is a science

and needs to be properly engineered and rigorously controlled.’



’The art is in the results and the uniform branding repeated in ads over

the years: the actions of high street banks appear absurd and

outdated.



This was illustrated in recent ads by WCRS featuring comedian Bob

Mortimer, who refused to queue and went round issuing random charges to

strangers.



Every month a trawl through First Direct databases results in the

collation of customer requests which in turn dictates future directions.

Simpson believes with such an approach it cannot go wrong. But it knows

the competition is doing the same thing.



Product focus



Virgin Direct ’s advertising for its Virgin One account similarly

implies that traditional high-street banks and their services are a

thing of the past. However, there is an important distinction, Virgin

Direct focuses on the products customers want and not the service

channel.



It is paying off. In the three and half years that Virgin Direct has

been in operation it has acquired 250,000 ’long-term’ customers and has

hit the pounds 500m lending mark for its Virgin One account. Plans for

more mainstream products are in the pipeline.



Gordon Maw, marketing manager at Virgin Direct, says its success has

been led by the trust that consumers perceive as an inherent brand

value.



But clever branding is no longer enough. New products offering a clear

benefit over the competition are crucial, with canny consumers

evaluating the best deal.



Egg, the new direct banking operation launched by the Prudential, has

taken more than pounds 100m of savings in its first month, despite

delays in opening accounts. People were attracted by the 8% interest

rate on its savings account.



Direct Line, a Royal Bank of Scotland operation, has stormed the

mortgage market fuelled by innovative products and ads.



Maw adds: ’The way forward is to exceed product expectations. First

Direct has not done that. It has to improve existing products, a warning

has been fired across its bows by the likes of Tesco and

Sainsbury’s.



’In the future people will switch brands more readily. Financial

services companies will come from nowhere to claim customers.’



First Direct may have pushed out the boundaries of retail banking and is

keen to stay on the frontier. But it is no longer alone.



Direct banking will be driven by customers familiar with technology and

savvy about products. The problem for First Direct is that it is no

longer first in the crowded market it helped to create.



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