Open all hours

First Direct were the pioneers of 24-hour banking, responding to consumer demand for a more flexible service. Now even Sainbury's is getting in on the act. Ken Welsby reports

At one minute past midnight on Sundays most bankers are either heading for bed or still out on the town. It's not the time of day when we would expect to find many of them working. So when First Direct chose to open for business at 00.01am on an October Sunday in 1989, it was sending out a clear message: we're here 24 hours a day, seven days a week. It was Britain's first full-service bank to conduct all its business by telephone, without a network of branches.

First Direct began in 1988 as a project team of bankers, marketers and engineers within Midland Bank. The group had the unlikely name of Project Raincloud, and was set up to explore the prospects and potential of telephone banking.

MORI was commissioned to find out why customers were turning their backs on traditional banking. Among its findings were: 20 per cent of customers had not visited their branch in the past month; 51 per cent preferred to visit the branch as little as possible; 48 per cent had never met the branch manager ... and, crucially, 27 per cent wanted to do more banking by phone. Further research by the Henley Centre for Forecasting found that consumer demand for improved service was higher among banks than any other retail business. What customers wanted was friendly and helpful staff, flexible opening hours, and simplified paperwork.

First Direct took more than 1,000 enquiries on that first Sunday alone. Today the bank takes 30,000 calls a day, has more than 630,000 customers, attracts new ones at a rate of 12,000 a month - and is praised for its standards of service and its highly competitive rates and charges. Features of the First Direct cheque account include a pounds 100 cheque guarantee card, automatic pounds 250 overdraft facility and a limit of pounds 500 per day on cash dispenser withdrawals - compared with a standard pounds 250.

Although First Direct was Britain's first telephone-only bank, it was not the first bank to offer services by telephone. That honour almost certainly belongs to Bank of Scotland, which has been offering not just telephone banking but PC banking since 1985. Bank of Scotland Direct is making a determined effort to win customers from traditional banks with an automatic pounds 500 no-charge, interest-free overdraft for three months to cover any "hiccups" while accounts are being transferred.

The home office banking service (HOBS) uses a modem link to give customers online access to their accounts. Using HOBS, you can see your account balances over the past three months, transfer funds between accounts, settle bills electronically and set up mandates to pay bills in the future. If you do not have a PC you can rent a "screenphone" terminal for only pounds 3 a month.

NatWest's Primeline offers what it calls relationship telephone banking. This is an effort to combine the efficiency of a call centre with the kind of personal relationship which you might build up with staff at your local branch if you visit it regularly. When you open an account with Primeline, you are allocated a personal account manager. For routine business, you can speak to whoever takes the call, but if you have a worry, or some complicated business to discuss, you can talk to your personal manager.

Not all telephone banking services come from organisations traditionally regarded as banks. Friends Provident, for example, has recently added an instant access deposit account for policyholders, combining competitive interest rates and ease of access. Tony Barnes, sales and marketing director, said that many customers with maturing policies had no plans to reinvest or spend the money, so launching the deposit account service was "a natural progression".

A similar progression will generate business on a much bigger scale for the mighty Prudential, Britain's largest life assurer, with seven million customers, which launched its new bank on 1 October. Initially the Pru is offering its own mortgages and two deposit accounts - the latter with an interest rate guarantee.

But if you thought the Pru's move into banking promised something of an upheaval, then last week's announcement by Sainsbury's is little short of an earthquake. The supermarket chain's partner in the new operation is Bank of Scotland, so there will be no shortage of expertise. Initially at least Sainsbury's Bank will offer deposit accounts and credit cards, but by the end of next year it is expected to offer the full range of banking and financial services - combining telephone operations and in- store cash dispensers. Some larger stores may have kiosks, or mini-branches.