I’ve long been an admirer of First Direct. Recently I’ve begun to think that First Direct might be the model for how banks defend themselves from the rise of supermarket banking. First Direct is already as a model of how a niche subsidiary should be managed a bigger bank but it might also be a model for how banks develop offerings that can counter supermarkets.

It’s to HSBC’s credit that they have kept the First Direct brand, identity and distinctive customer service set up and culture. The survey from Which? saw First Direct named as the UK’s number one for customer service reflects well the First Direct internal culture and how it has remained distinct.

Managing a niche, subsidiary brand is something banks have always found hard. Within the bigger banks there is always the pull to centralise, standardise and integrate. Consultants will present management with phrases like “economies of scale” and nice, tangible spreadsheets. Of course, the numbers may refer to true economies (or not) and real costs, but they risk not measuring the value of the less tangible. These less tangibles are often the things that drive future business. It is hard to measure the value of the brand, its differentiation, what makes customers loyal and what will generate future business, but it is easy to throw these away in return for possible and often only small efficiency gains.

Unfortunately consumers see through homogenisation and understand when a brand is just a different colour presentation of the same offer. They also understand well that areas like the call centre might be only used occasionally, but when the customer calls, these are “moments of truth” for defining the customer experience and brand perception. Managing customer contact as a pure cost is one of the reasons that so many consumers are willing to give supermarket banks a try. First Direct’s contrarian thinking on this stands out and gives them such a differentiated brand.

A good example is cited in the Finextra report, “The number one bugbear cited by consumers in the study is having to navigate an automated phone system to talk to a real person”.  The automated phone system (IVR) is a good tool for the right problem. Sadly, it is often used as a way of managing costs and too often designed with the bank’s priorities in mind. As many customers now only call when it is urgent for them and use the web or mobile for routine transactions, the customer experience of the IVR is often significantly out of line with customer expectations.

I would argue that focusing on the customer has been a longstanding opportunity in the UK market. In the early 2000s, I was a junior consultant and supermarkets had just entered the UK banking market by white-labelling other financial services providers offerings. We assessed that retail financial services had an opportunity by actually focusing on the retail side, as First Direct has done throughout this period. Supermarkets were perhaps best placed take advantage of it. Finextra was kind enough to publish our report: “Retailer threat to UK banking industry”,

It’s noticeable that the channels we saw as priorities then for the supermarkets (the web and call centre) are the ones that First Direct has remained focused on. Branch is traditional but it is not a channel that the UK supermarkets or First Direct have seen as worth entering. This perhaps is because for most of today's customers most banking can be done without entering one. Instead, the critical channels for customer experience are mobile (regular checking of account state), web (detailed account managment) and contact centre (an occasional but critical channel for getting help or buying if things are complex).

The lesson from First Direct is that if banks are to retain customers against retail specialists, then their priority has to be on the customer experience, then the brand that conveys it and then the channels that deliver that ease of access.