Pressing the buttons for a banking revolution

Barclays this week announced its PC banking service. Frances Howell looks at the options for finance down the line

In October 1989 Midland Bank opened the lines to First Direct, its 24-hour person-to-person banking service, amid widespread derision from its competitors. The start-up costs, including equipment, round- the-clock staffing and national advertising, were huge.

But in the first few hours First Direct received 1,000 calls. The original telephone bank now boasts 500,000 customers. Some 77 per cent of these come from banks other than Midland.

Midland's mocking competitors had to swallow their words as their more bankable customers began ringing the friendly voices of First Direct. Now telephone banking services are par for the course at high-speed banks.

However, telephone banking is only one of the range of "Telebanking" services available. These range from fully automated tone or voice-activated services, to 24-hour person-to-person telephone banking. There are also a variety of ways in which you can look through your own bank account on your television screen or PC at home.

Using these you can perform a wide range of banking operations, including checking bank statements, paying bills, setting up direct debits and making account transfers. The transactions and services available depend on where you bank.

What is surprising is how long it has taken telebanking to become the norm. Some banks are still piloting their telephone banking services. But as far back as 1986, TSB was offering an automated phone-in facility.

As this preceded tone phones in some areas, TSB actually distributed replica digital dialling pads which could be kept by old-style exchange phones and used to make the appropriate noises.

Similarly, the Bank of Scotland launched HOBS, its Home and Office Banking Service, 10 years ago. Customers would have a small television-style screen in their offices or homes on which they could call up details of their bank account. The same service is now available either with a PC, a fax modem and the appropriate software, or a telephone with a special screen. For personal customers, however, it costs. The telephone will set you back pounds 99 or pounds 3 per month rental. It then costs pounds 4 per month to subscribe to the service.

It was only this week that Barclays announced its forthcoming Barclays PC Banking Service, which it will be piloting at the end of this year. In many respects it is similar to HOBS. The novelty of the Barclays service is that it is free, at least during the pilot scheme.

What is really new in telebanking is that the retail banks are now focusing on the convenience of their entire customer base, and not just a select few.

According to the Banking Ombudsman's office, the telebanking customer has traditionally been "more sophisticated." However this is possibly the result of restricted entry to the telebanking club rather than a tendency for customers with more developed banking requirements to switch to telephone banking.

For example, the services of First Direct have only been available to those who have well lined pockets. Each of the 10,000 new account-holders at First Direct every month has had to pass the bank's high credit rating requirements, which are described by its parent Midland as "quite strict''. First Direct maintains its claim to an element of flexibility in this area.

"Although somebody might not be eligible for a current account, they may be able to open a savings account," it says. However, this flexibility has not yet stretched to student accounts.

The customer profile for First Direct is ABC1, described by the bank as "intelligent, empowered, knows about banking services and knows what they need. Twenty four-hour access to their account gives them much more control."

On one hand, control can be exercised by paying Visa bills with a phone call at the last possible moment, so as to maximise interest advantages. Another example given of customer control is of a customer finding her cashpoint card refused late on a Friday night, thus leaving her stranded. One phone call, presumably with her last 10p, or on her mobile phone, can extend her overdraft and withdraw her taxi fare home. This begged the question of what First Direct would do if the stranded female calling from a callbox from some insalubrious urban area at 3 am was in hock up to her eyeballs? "We are still a bank and not an emergency service," First Direct says. "There are certain criteria to be met. Each case is assessed on its merits. In a borderline situation, we might be generous." And if not? Nobody could envy the late-night operator who has to say "Stick to the lit streets, walk fast, and good luck."

NatWest's telephone-only bank, PrimeLine, is also restricted to more bankable customers. To join you must have a minimum income of pounds 18,000. This, however, does not offer the 24-hour control of First Direct. So hang on to your cab fare home.

Unlike First Direct, NatWest also offers a telephone banking service for students called, appropriately, StudentLine. This is available on nine campus sites where there are no Midland branches, for example where Barclays has been given "an exclusive" on the campus.

Although, at first glance, NatWest may seem to be embracing a more penurious class of customer into the telephone fold, students today are high credit ratings of the future. Those NatWest customers who fall into the wide band of non-students earning less than pounds 18,000 do not get the personal touch on-line. Instead, they have access to a 24-hour fully automated service.

The rest of the high street banks are now offering telephone services to their regular account-holders. The hours during which these services are manned vary from bank to bank. Some banks have automated services outside of, or in addition to, manned hours.

As well as being available to all credit categories of customer, most of these services have the added advantage that there is no need to move your account from your existing branch.

The high street telebanking services offer additional means of assessing your account and performing transactions - as opposed to the alternative service originally offered by First Direct. All that your bank is likely to require is that you register with them to set up a password.

Financial criteria have not been the only obstacles to telebanking becoming a routine activity for the mass market. People, as ever, are suspicious of the new, and have therefore held back from putting their money at the mercy of technology.

Research has shown TSB that its customers' hesitations over telephone banking fall into two principal categories. Firstly, a "techno-fear" of machines and automated systems. The answer to this is its manned PhoneBank service, as opposed to its computerised response, SpeedLink.

This approach has been adopted in one form or another by all the main high street banks, although only TSB, the Royal Bank of Scotland and the Bank of Scotland have so far risen to the 24-hour person-to-person challenge of First Direct. However, the newcomers' service is, with the exception of NatWest, available to all account-holders.

The other worry is security. Telephone banking provides a two-way risk of this. Either a stranger can ring up your bank, or, as the Banking Ombudsman points out, a stranger can ring you up, pretending to be your bank.

Despite these possibilities, the Banking Ombudsman's office assures us that security has not been a problem so far. The banks have set up complex security systems, generally based around passwords. To avoid these being overheard, it is a common practice to only ask the customer to give random combinations of the letters in the password, for example first and third, and not the whole word.

TSB even goes so far as encrypting the recording of the first part of the phone conversation in which the password, or parts of it, are disclosed.

DO

Do follow up significant transactions in writing. The Banking Ombudsman's office says that it is much harder to resolve disputes when there is no documentation. However, most banks do record all telephone banking service conversations, but tapes will only be kept for a short time.

Do always check your bank statement when it arrives. The earlier an error is spotted, the quicker it should take to be to resolved. Also, some tapes of telephone banking conversations are only kept for 30 days.

DON'T

Don't fail to check it is your bank that's on the other end of the line. Either ask them some questions, which only your bank would know, or call them back.

Don't spend your cab fare home, just in case.