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fd (First Direct) :
TM

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

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Case summary
1988 : Market trend : Downsizing and cost reduction
 Midland Bank was the 4th largest bank in UK
 A significant proportion of customers were reluctant to visit
branch offices, dissatisfied with banking hours

1989 : Starting of First Direct , using 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
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Business model
PEST Analysis
Political Economic

Deregulation in banking Over capacity


↓ Downsizing
Many New entrants ↓
Low profitability

Social Technology

More wealthy people Improved computing


Increased mobility Automation
Increased demand for Personal computer
better services Improved telecoms
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Business model
Company Distance direct banking

24/7 operation Low cost Staff &


Technology
Customers

24/7 Attractive Personalized


remote banking efficient
convenience products friendly service
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Business model
Sustainability

Investment in training Providing high


Commitment culture quality service

Revenue Prominent
growth reputation and
brand Image

More customers
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Competitive advantages
-> Value
 Services:
 Availability (anywhere / anytime)
 Personalized, friendly, and high quality
 Responsiveness - Less interface
 Products:
Customers
 Free or lower fees
for financial products

Company Cost
Speed Competitors
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Competitive advantages
-> Cost
 By reducing process time
 New technology (ACD, Database)
 Competent staff (Training system)

 By office
 Low rental office fee Customers

 Smart use of office space


 Sharing infra with HSBC
Company Cost
Speed Competitors
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Competitive advantages
-> Speed
 First mover advantage
 Culture of
continuous improvement
 Short time marketing
of new products
Customers

Company Cost
Speed Competitors
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Current challenges (1996)
5 forces analysis
Threat of new entrants

+Low capital requirements


+No legal or patent barriers

Bargaining power of Bargaining power of


Industry rivalry buyers
suppliers
+Many competing banks + Many banks offer
-Many IT providers
and other companies remote services
-Market deregulation

Threat of Substitutes

+ Internet Banking
+ Increased experiences in remote services
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Current challenges (1996)
Segmentation analysis
High
Potential Stretch Area Potential Stretch Area
First Direct
Social status

Big 4 Banks

Low
25- 45 65+
Age
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Current challenges (1996)
SWOT analysis
Strengths Opportunities

•Brand image •New remote technology – internet


•Experience and know-how •Additional financial products
•Competent staff •Improve advertising approach
-Prominent training program •Potential to expand customer base

Weaknesses Threats

•Fast growth : •Increased competition


Undermining company culture •New substitutes based on internet
and consistency in services •Competitors’ use of technology
•No diversification in its •More sophisticated customers
distribution channel
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Strategic
recommendations

Maintain current business model


and its superior service level

Need for person to person communication remains


There competitive advantage
– strong brand image in telephone banking
(Base Analysis: SWOT, Value-Speed-Cost Analysis)
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Strategic
recommendations

Introduce online banking

Increase service value for existing customers and attract


new customers that use computers

(Base Analysis: SWOT, 5forces)


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Strategic
recommendations

Aggressive customer acquisition in


UK

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)
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Strategic
recommendations

Expand range of financial products


to attract new target customers

For Students
Offer student loans, health insurance, personal liability
For elder people
Saving funds for grandchildren, life insurance
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Case update - 2004


FD today
 Grown by 56% to 1 Million of customers
 High customer satisfaction (85%)
 Additional channels
Number of customers First
– internet and mobile phone Direct

 Increasing range 1,000,000

of financial products
 10,000 new customers 500,000

every month 0
1996
2004
the more of our services you use,
the more sorted you are.

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