I take pride in making people’slives that little bit easier.

I take pride in making people’slives that little bit easier.

fdfdTM (First Direct) : Branchless BankingGroup 2B FT 2005Simone Huijs / Suraj Basnet / Ken Kodaka / Eugene Kolesnikov / Joan Moreau / Piercarlo Oddone

Rotterdam School of ManagementErasmus 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 modelPEST Analysis

PoliticalPolitical

Deregulation in banking↓

Many New entrants

EconomicEconomic

Over capacityDownsizing

↓ Low profitability

SocialSocial

More wealthy peopleIncreased mobility

Increased demand for better services

TechnologyTechnology

Improved computing Automation

Personal computer Improved telecoms

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Business modelDistance direct banking

Low costLow cost24/7 operation24/7 operation Staff &Staff &TechnologyTechnology

PersonalizedPersonalizedefficientefficient

friendly servicefriendly service

24/724/7remoteremote

convenienceconvenience

AttractiveAttractivebankingbankingproductsproducts

Cu

sto

mer

sC

ust

om

ers

Co

mp

any

Co

mp

any

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Business modelSustainability

More customers

Investment in training

Commitment culture

Prominent reputation and brand Image

Revenuegrowth

Providing high quality service

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Competitive advantages-> Value

Services: Availability (anywhere / anytime) Personalized, friendly, and high quality Responsiveness - Less interface

Products: Free or lower fees

for financial products

Customers

Valu

eVa

lue

Spee

d

ValueValue

Speed

Company CompetitorsCost

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

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Customers

Valu

eSp

eed

Value

Speed

Company CompetitorsCostCostSpeed

Competitive advantages-> Speed

First mover advantage Culture of

continuous improvement Short time marketing

of new products

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Customers

Valu

eSp

eed

Spee

d Value

Speed

Speed

Company CompetitorsCost

SpeedSpeed

Current challenges (1996)5 forces analysis

Bargaining power of Bargaining power of buyersbuyers

+ Many banks offer remote services

Threat of new entrantsThreat of new entrants

+Low capital requirements+No legal or patent barriers

Threat of SubstitutesThreat of Substitutes

+ Internet Banking+ Increased experiences in remote services

Bargaining power of Bargaining power of supplierssuppliers

-Many IT providers-Market deregulation

Industry rivalryIndustry rivalry

+Many competing banks and other companies

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Current challenges (1996)Segmentation analysis

AgeAge

So

cia

l S

oci

al

sta

tus

sta

tus

High

Low

45 65+25-

Big 4 Banks

First Direct

Potential Stretch AreaPotential Stretch Area

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Potential Stretch AreaPotential Stretch Area

Current challenges (1996)SWOT analysis

StrengthsStrengths

•Brand image•Experience and know-how•Competent staff

-Prominent training program

WeaknessesWeaknesses

•Fast growth : Undermining company culture and consistency in services•No diversification in its

distribution channel

OpportunitiesOpportunities

•New remote technology – internet•Additional financial products•Improve advertising approach•Potential to expand customer base

ThreatsThreats

•Increased competition •New substitutes based on internet•Competitors’ use of technology•More sophisticated customers

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Need for person to person communication remainsThere competitive advantage

– strong brand image in telephone banking(Base Analysis: SWOT, Value-Speed-Cost Analysis)

Maintain current business modelMaintain current business modeland its superior service leveland its superior service level

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Strategic recommendations

Strategic recommendations

Increase service value for existing customers and attract new customers that use computers

(Base Analysis: SWOT, 5forces)

Introduce online banking Introduce online banking

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Strategic recommendations

Potential 10 million customers in UKExisting infrastructure for economies of scaleProven services to attract conservative customers(Base Analysis: SWOT, Segmentation analysis, 5 forces)

Aggressive customer acquisition Aggressive customer acquisition in UKin UK

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Strategic recommendations

For StudentsOffer student loans, health insurance, personal liability

For elder peopleSaving funds for grandchildren, life insurance

Expand range of financial products Expand range of financial products to attract new target customersto attract new target customers

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19962004

0

500,000

1,000,000

Number of customers FirstDirect

Case update - 2004

FD todayFD 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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the more of our services you use,the more sorted you are.

the more of our services you use,the more sorted you are.

Any questions ?Any questions ?