International Business : British Bank Finds Its Calling : First Direct’s Phone Service Has Ring to It


Here in the old industrial heart of England, Kevin Newman, ‘90s revolutionary, presides over a bank with nearly half a million affluent customers and no branches.

First Direct thrives in a huge computer-friendly hangar built where a games company once manufactured Monopoly. The bank phone rings 25,000 times a day. But there are no queues, no tellers, no executive offices, no office hours, no till. A bank without money? Of course there’s money.

“I think there’s about 100 pounds [$160] petty cash in the safe,” Newman said.

What’s going on here? First Direct is the world’s first--and so far only--telephone-only bank, Newman said, the chief executive officer. The bank operates ‘round the clock. And it is raising eyebrows and inspiring imitation in banking circles at home and around the world.


Six years old, First Direct says it has been adding about 10,000 new customers a month, good fishing in a country where traditions die hard. Statistically, the British are more likely to change spouses than banks. One-third of marriages end in divorce, but only 3% of clients switch banks in any year.

“We want to redefine the whole paradigm of banking. The telephone is now the most efficient means. If it becomes the personal computer in the future, we’ll do that,” said Newman, 38.

First Direct is a success story for Leeds, once cradle of the Industrial Revolution thanks to nearby Yorkshire coal mines, but lately a Rust Belt also-ran. Heavy industries, like coal, are in decline, but in Leeds these days nearly 2,500 people draw paychecks from a pioneer bank that existed only in planners’ minds a few years ago.

“In another 10 years, First Direct will employ more people than all the coal mines in England and Wales,” Newman said.

The country’s fastest-growing bank, First Direct already has clients enough for about 200 branches in a society where the bank manager is as prominent and often as avuncular a man about town as the local vicar.

But the only way customers visit First Direct is by phone. Newman--by intention--has never met more than a handful of his bank’s customers.

“There’s no place in the new scheme of things for an old-fashioned bank manager. When people want a loan, they want it now,” Newman said. “And the cultural ethos is as different as the mechanical one. We are providing a service. It happens to be called banking. Ninety percent of employees here never worked in a bank.”

First Direct is a division of Midland Bank and a product of adversity. Faced with tough competition, a profits squeeze and growing customer impatience with traditional banking practices, Midland created Project Raincloud. They asked Newman and a band of iconoclasts to redefine banking.

“We wanted a fundamental change in the consumer-supplier relationship. In the U.K., people think their relationship with a bank is unequal: the little man against their billions. Well, I want to redress the balance. I don’t think people should have to feel good if their bank deigns to give them a loan.”

Targeted at 25- to 45-year-old professionals, a potential market of about 7.5 million in Britain, First Direct was born at midnight on Sunday, Oct. 1, 1989. The phones have been ringing ever since.

“We were looking for affluent, educated people for whom time is more precious than money. We try to offer them speed, convenience, value and service. We aim to get it right mechanically, and to get it right with people,” Newman said.

Customers seeking over-the-phone loans, insurance, mortgages or securities transactions may be passed on to specialists, but about 85% of calls are handled by first-line banking representatives like Grainne Carey, a 27-year-old former primary school teacher who trained for seven weeks before greeting her first client.

She pays bills electronically, transfers money between accounts, sorts out credit cards and checkbooks. Customers pay the cost of a local call to talk with First Direct from anywhere in the country, and use 7,000 ATM machines of other banks to get cash. They also receive monthly statements in the mail, but paperwork is minimal. Newman said that about 80% of customers use First Direct as their main bank and that many mature customers use it as their only bank.

“People get used to the idea that we can do anything. One asked if we could recommend a solicitor,” Carey said. “We have information about the client’s account on the screen as we talk, so it’s a lot better than a cashier who may not know anything about the customer. And if a teller sees that queue growing, she might incline to rush. This way we can be more personal and take as much time as needed.”

First Direct says its research shows that about 90% of its customers are very or extremely satisfied with bank services. The comparable figures are 59% for “building society” (savings & loan) customers, and 43% for clients of the country’s five largest traditional banks, First Direct says.

“This is the first time I’ve had a job where I get more compliments than complaints,” said Anthony Hicks, 27, a former government worker who joined First Direct as a banking representative earlier this year.

Telephone banking is not for everybody, though. It doesn’t work for certain businesses, and some people just want their money where they can see the people who watch over it.

First Direct, for its part, is also fussy, turning down 45% of would-be customers.

“We reject applicants because we never want disaffected customers. We don’t want people to whom we may have to say ‘No,’ ” Newman said.

Credit screening procedures, like per-transaction costs and the bank’s underlying electronic wizardry, are among things that First Direct does not talk about.

People in the business are asking all the time, though.

“We have had overtures from other bankers--in Europe, the U.S., South America, Australia. But we are not talking to many of them. Why would we, unless it were mutually beneficial?”

First Direct is facing new competition from large banks which, like their U.S. counterparts, are rapidly expanding telephone banking services as a supplement to their branches.

Newman is an interested but unconvinced observer: “It was hard enough for us with a fresh start. It’s much harder for a bank with outlets.”