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INFORMATICS COLLEGE OF SCIENCE AND TECHNLOGY

2009
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History of First Direct Bank

A division of the HSBC group, the First Direct banking Group is one of the first telephones and internet
based UK based commercial banks. With its head office in Leeds, Yorkshire, and working out of two
customer service centers in Leeds and in Hamilton, near Glasgow in Scotland, the First Direct boasts a
client base of over one million satisfied customers.

The idea behind First Direct came from the Midland Bank, who established the bank in the autumn of 1989
to cope with the tremendous interest and profit advantages of internet banking. The bank operates around
the clock, seven days a week and there has never been a single interruption since the bank opened its
doors almost twenty years ago,

In 1992, the Midland Banks was acquired by the Hongkong and Shanghai Banking Corporation, more
commonly known as HSBC. Rumors in banking circles have it that HSBC found the First Direct a more
attractive proposition than the Midland Bank, but were obliged to take the whole package. This rumor has
always been denied by both parties, who claim that HSBC had been buying up Midland Bank shares well
before the First Direct Bank had even been formed.

The First Direct Bank¶s first steps into internet banking began in 1997, and were going full tilt by the
following year. One of the innovations pioneered by the First Direct Bank was the use of SMS texting to
instantly alert customers to fluctuations in their account. By the early stages of the twenty first century, First
Direct Bank was putting their toes in the water of providing offset mortgages. In addition to a number of
ancillary services launched around that time, the Bank introduced an Internet Banking plus scheme in
2004.

This scheme provided its subscribers with an all inclusive financial picture of their entire banking set up
from current accounts, saving accounts to credit card accounts not only from the First Direct Bank but also
from other third party banks. In keeping pace with telecommunication developments, the Bank now
provides the same service for mobile smartphones, allowing someone on the move to keep track of their
financial situation through the bank¶s WAP technology powered Monilink system.

In its short history, the First Direct Bank has kept pace of all the developments in technology of the last two
decades, with the expectation that, despite the current recession, the bank will continue to keep pace.
1.c Overview of Performance and strategies employed
The low cost of running company and higher customer satisfaction served the company well profits were
higher than other financial organizations and the company was able to gain more customers through
advertising and recommendations from existing customers.

Exhibit:2
First direct: Estimated Account Data

Date Total number of Total number of Calls/day Staff

customers accounts
Apr-96 641,000 1,100,000 32,000 2,400
Dec-95 586,000 800,000 26,000 2,300
Dec-94 476,000 700,000 21,000 1,900
Dec-93 361,000 500,000 16,000 1,500
Dec-92 241,000 350,000 11,000 1,000
Dec-91 136,000 200,000 7,000 500
Dec-90 66,000 105,000 3,000 300
Dec-89 11,000 N/A N/A 250

Source; ³Fiest direct; Branchless Banking´ INSTEAD, Fontainebleau, France, 1997

First Direct has a number of guiding principles which served to make them such a success.

yc Brand differentiation ± They build a brand customer could identify with.

yc A proposition designed for the customer ± they decided to build a bank for the customer and not for
the bank. They didn¶t and still don¶t talk about the process but rather the customers.
yc An internal culture founded on clear core values, constant mining of customer information and the
relentless pursuit of alignment.

They made sure internally that their values and behaviors were consistent with the way they wanted the
brand to manifest itself to the customer. First Direct had six core values with which to achieve this namely:
responsiveness, openness, right first time, respect, contribution and kaizen.
2.c Environmental Analysis

Macro-environment (PESTEL analysis)

yc Economic-Subsidiary of Midland Bank and form 1992 part of HSBC ± had economies of scale due
to HSBC resources. Meant less expenditure as it benefited from the development of HSBC.
yc Economic ± The large number of brsnches opened by banks and buildings societies in the early
1990¶s had an adverse effect on the economy. This resulted in mergers and banks had to be
downsized and cost had to be cut to prevent a recession.
yc Social Culture ± fast paced lifestyles. Professional Individuals who lived increasing fast-paced
lifestyles were enticed by speed, efficiency and convenience.
yc Technological ± The early 1990¶s were rife with technological advances in banking. Automated
Teller Machine were becoming increasingly popular and telephone banking was widespread. There
was a radical change in payment options during the early 1990¶s and the plastic card (debit cards
and smart time) were increasing used as a replacement for cash. Home banking was launched in
1995 by Barclays bank which could be accessed frm the customers personal computer.

Micro-environment (PORTERS)
yc When it launches First Direct had no direct competitors in the UK as it had an improved speed and
service for customers, attracting a niche market (affluent and regular depositors¶). There was
increased competition by mid 1990¶s as most banking institutions offered some form f direct access
for their customers.
yc The likelihood of entering the market is high, this is due to the banking act of 1979 which allowed
banks and building societies to offer a wide range of personal services and not much investment,
which made the market easier to enter. By 1996 the use of telephone banking (see Exhibit 1) was
widespread throughout the industry and many banks and building societies have started to realize
the benefit of telephone banking services. New organizations like Virgin Direct were offering
savings plans and low cost life insurance via the telephone. Many companies were learning from
First Directs example and following suit
yc Substitutions: traditional banking A significant minority of First Direct customers had spontaneously
requested PC access o their accounts, although most banks and building societies offered their
customers some form of direct access
yc Buying power of customer: The power of the customer is high. As described in the case study one,
1 in 5 people could not distinguish between the services offered by different banks and customers
 are usually unwilling to switch banks. Banks had to offer unprecedented services and offers to lure
potential customers from the competition
yc Power of suppliers: As banking is a service industry, there is a low supplier power. Telephones and
computer are obtained from the suppliers but the company probably has many different suppliers
from which these are sourced

SWOT ANNASYSIS

Strengths:

yc Easy Access: 24 hour banking enable customers to retrieve their banks information at any time.
Customers were not forced to go into the branch to make minor enquires and transactions. Faster,
simpler more efficient methods of banking attracted many customers.
yc Customer service: Business Representative used a Customer Information System to have access
to customers accounts and history; it also records every customer contact. Business
Representative could handle 85% of all calls without transferring calls. Minimum company service
objectives required that 75% of all calls be answered in 20 seconds or less. Business
Representatives could record customer information gained during telephone conversations (such
as customer¶s vacations) on MIND and so allowing BR¶s to comment on them in the future.
Customer¶s felt valued and individual which gave First Direct a distinct advantage; customer¶s
could easily differentiate between First Direct and other banks.
yc People development: First Direct recruited individuals who were from social professions.
Individuals who were fast and efficient workers with empathy and able to work under pressure
while maintaining warmth and sincerity. Business Representatives had to under go a 7 week
intensive training course. Br¶s were required to pass a total of 54 internal accreditation test within 9
months of employment with career development and performance bonuses (which could go as
high as 5% of the annual wage) employees were given incentives to remain with the company.
Various term building exercises were regular to maintain good term rapport. An open plain office
environment ensure a good working relationship between staff and managers.
yc Low cost: First Direct offices were based in Arlington and Stourton in Leeds. The lower cost of
wages and rental were highly attractive to the fledgling company. The
³hot desking´ approach was used to be able to utilize all available space and keep cost low. First
Direct made use of efficient information system; this was instrumental as the databases were used
in every aspect of the business. First Direct had only 2400 staff members in 1996 serving 641,000
customers. A branch based bank would require almost 4000 employees to serve the equivalent
number of customers.
Weaknesses:

yc A culture built on innovation was difficult t maintain as the company needed to develop their
technologies to be on the forefront of the financial services sector. If an easier and fast means
of banking was developed by another organization customers would be drawn to them.
yc Another potential obstacle would be maintaining that µinnovative culture¶ as the company
inevitably expanded to more than 10,000 employees spread over numerous sites
yc The company was growing at an incredible rate and they had to maintain the service and price
that made them a success.

Opportunities:

yc Rom for expansion while keeping cost low: - With profit from 1995 onward, and growing number of
customers due to word of month and advertisements, there was ample room for expansion.
Currently with over 640,000 customers and objectives to increase customer base to 1 million
customers by the year 2000. First Direct could expand to more sites.
yc Technological Investments: - As an arm of HSBC, First Direct would be able to benefit from their
technological investments, keeping it at the forefront of technological innovation whilst keeping
their costs lower than other banking organizations.
yc As the call centers were a hub for all communications, this forced service standards to be higher
than usual. Customer relationships were built and this would lead to more opportunities to expand
customer base due to word of mouth advertisement.
yc Cross selling of various services: - Databases which recorded customers personal details could be
accessed by BR¶s and promoting services which they required, as well as sending them brochures
of services at time they might need them, would increase sales and profit for First Direct. Lower
prices for these services which ensure more customers were attract by them. Also the higher wage
individuals whom First Direct targeted, most likely car owners, would be more than likely to be
attracted by the insurance, mortgages, credit cards, offered by First Direct.

Threats:

yc Increased competition from retailers as well as private companies i.e. Virgin Direct could pose a
problem in the future as many of these new organizations also offered the same services and the
market could become saturated.
yc Increased use of electronic banking being offered by nationwide, Bank of Scotland and Clydesdale-
If electronic banking were to become the norm and First Direct did not enter the market, they would
not have the advantage in the electronic age and would not be able to maintain competitive
advantage.
First Direct Post 1996
First Direct has maintained their customer loyalty from their inception in 1989. According to
MORI and NOP research, First Direct has been the most recommended bank in UK for the past 13 years
and currently has over 1.2 million customers

Innovations

First Direct has remained innovative since 1996 offering customers easier, more efficient access to
their accounts via various channels; fitting in which increasingly faster paced lifestyle and
technological advances. These innovatins have kept them ahead of competition and have ensured
First Direct success in the banking industry.
yc On-line banking
The bank began limited trail of Internet banking in July 1997, launching the service fully in 1998.
880,000 of their customers currently use internet banking. Indeed, in an effort to reduce cost, First
Direct has implemented means to divert customers to lower-cost channels. First Direct managed
to boost profit considerably by reducing 80% of transactions online without Impacting satisfaction
levels. In addition First direct introduced web chat to their online service allowing customers to
receive immediate answers to queries about their accounts.
yc Text banking
First Direct, the first company to do so, offers a truly innovative service where yu can have free
weekly mini-statement sent to your mobile phone as a sms text message. You can set up the
service to send you a message when your account gets above or below a certain balance, or when
your account is about to be overdrawn. Text Message banking woeks with savings, credit cards
and the First Direct current account.

yc iPhone Banking
First Direct is making use of the latest technologies to bring Internet Banking to iPhone. They
enhanced their Internet Banking service to provide a seamless online experience for all iPhone and
iPod touch users can access their online account, make payments and apply for new products.

Expansion
First Direct is based at two call centres in Stourton (leeds) and Hamilton, South Lanarshire,
Scotland. Hamiltn is the largest of the two call centers however the leeds call centre handles risk
assessment and some processing role. First Direct did not extend UK, showing sustained growth.
 By managing their growth they were able to concentrate on customer service as well as innovative
technologies to keep existing customers and gan more customers Within the UK.

Offset Mortgages
Alongside looking after the need of the customers, in 2001, First Direct introduced an offset
mortgage to its list of products on offer, which was to encourage some of its heavier depositors
Who have mortgage with First Direct to reduce the amount of interest payable n the debt owing.
This can be seen as a great product and cost saving to many mortgage holding customers.

Customer dissatisfaction with the Business Model

The company, First Direct enjoyed the business model of attracting affluent customers, who
frequently deposit money or keep a consistent balance in the account. This way of operating
worked for the company since birth in 1989, however the bank in November 2006 gave plans to
implement a statutory change of £10 for those accounts holder having an average balance of less
than £1500. It was meant to encourage clients to keep their current account in such amount of
credit to enjoy the free banking. The idea may have seemed like a good from the company¶s
perspective, i.e. keeping only the most affluent customers, who brought the company the most
profit and discouraging the less profitable ones. Unfortunately, it alienated a vast amount of its
client base as an article published by the Financial Times claimed that, within a month, almost
20,000 accounts had been closed down.

Environmental awareness
First Direct has become the first direct banking to go µcarbon neutral¶ and reduce carbon dioxide
(CO2) emissions to zero. First Direct is achieving its goal by reducing energy use, buying green
electricity and than offsetting the remaining CO2 emission in carbon reducing projects. To go that
one step further it has introduced on it¶s leads and Hamilton sites to help extend it¶s environmental
 Question sitnecesso istiecttoundestnditǯs
etinodetoeluncitsoduct?

Ans: - Understanding the market

In business when we relaunch a product we need to understand the market where we operate.
Before launch of a product the business should understand its customers so that the goods and
services can be provided as per required by the customers. It must position itself in such a way that
its product differs from its competitors. A company¶s destiny is to fail if its product, price and
services are not better than that of the standards offered by its competitors

This is what happens to First Direct the first time when it made changes with its terms and
conditions without knowing what their customers want. They try to deepen customer¶s relationships
and encourage more use of the bank. If the customer is paying less than £1500 a month he does
not attain the maximum facilities of the First Direct and also a fee was charged from them. This
was a bold move be the bank because no individual would want to pay that much amount a month
for a current account that is why the First Direct had to understand its market situation before
relaunching their product. So that the customer¶s requirement and wants should be kept in mind
next time when the product is launched

The main reason for the First Direct to understand its market before relaunch is as fallows
yc To assess if its products and services were the right ones for their customers
yc To identify how First Direct is viewed in comparison with its rivals
yc To create ideas about how to improve customer awareness, to retain the loyalty of customer and
to develop business