| As with most aspects of financial services and, indeed, life in general, what was once innovative has now become commonplace. It was only in 1988 that Direct Line became the first major financial services organisation to make a success of direct selling over the telephone, and a year later that First Direct revolutionised the current account proposition by establishing a branchless, telephone-based alternative to traditional high street banks. The telephone was rapidly adopted as a means of buying and servicing all kinds of financial products, from shares to bank accounts to household insurance.
While telephone sales have become the dominant channel in the motor insurance market, consumers are still very much wedded to the branch network when it comes to banks, generally using telephone banking to supplement the facilities offered over the counter. The high street banks, despite the success of First Direct, are still the dominant players in the market, and the big five have in excess of 8,000 bank branches between them - hardly a sign of a dying distribution channel. For these providers, offering telephone banking has not so much been a case of replacing existing distribution channels, but simply adding an extra option.
With the advent of the Internet came a fresh set of innovative competitors and fresh challenges for the high street banks. Rather than just a single bank competing with traditional institutions, a raft of new providers entered the market. The likes of Smile and Egg launched in a blaze of publicity, offering market-beating rates. First Direct, too, has adapted its product offerings to present a major challenge to the high street institutions.
Nevertheless, adoption has been slow. Many are simply reluctant to change their current account, highlighting the considerable inertia that providers must fight against when looking to increase market share. A more fundamental issue is a widespread reluctance among many to provide personal or financial details online thanks to, perhaps largely unfounded, security fears.
This report examines the factors driving the growth of direct banking services, covering both telephone and online channels, and pure-play and the so-called 'bricks and clicks' providers. Further examination is paid to the size of the market, and the mix and pricing of online and telephone-based products offered by the various providers. The initial costs of creating a brand identity led many pure-play operations to spend heavily on advertising and promotion, and the role this plays in the market is examined.
With most online providers offering better rates than the traditional banks, it is vital to understand what is preventing a widespread emigration to direct channels. In order to do so, Mintel commissioned exclusive consumer research, in which a representative sample of adults was questioned as to channel usage and attitudes towards online and direct banking channels. Finally Mintel investigates the possibilities for future development within this sector and forecasts the level of usage over the coming years.
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