Finance by Phone: Dial M for money

whether buying a house, insuring a car, taking out a pension or checking the balance in your account

Kathleen Cedergren is one of Britain's first virtual bank managers - she never sees most of her customers and they do most of their banking by phone or computer link.

"The day they come in to open an account is often the first and only time we ever see them," says Ms Cedergren, who recently opened Citibank's latest branch at Canary Wharf, London.

Telephone banking is available from US-owned Citibank 24 hours a day - not just in the UK but from anywhere in the world, thanks to a global network of free-call numbers. From countries such as Vietnam, where free calls are not available, customers can reverse the charges.

The service caters for Citibank's specialist corner of the market - business people with above-average earnings who travel frequently and need a simple way to manage their finances wherever they are. As well as banking, the telephone operation offers round-the-clock assistance, including emergency cash.

"If you lose your wallet at midnight in Paris, you can make an immediate free phone call to cancel your cards - and collect some cash at our branch in the Champs Elysee the following morning," says Ms Cedergren.

In addition to conventional telephone banking, customers can also access their accounts online in two other ways. The first is through a screenphone, which combines a keypad and miniature LCD screen to provide prompts, text messages and confirmation of transactions. The other is to use a Psion palmtop computer, with its built-in modem and custom software.

Citibank's niche market operation contrasts sharply with Britain's biggest telephone banking operation, Alliance & Leicester, with 1.6 million customers - a total that is growing at the rate of more than 100,000 a year.

Calls to A&L's banking centre have increased to more than 7 million a year as new services and facilities are added to the system. Technology known as automatic call distribution means that if you need to speak to a specialist bank officer - for example, to discuss a loan or mortgage - your call can be routed instantly without being put "on hold".

More than 60 per cent of A&L banking customers are women, according to Sue Cooper, telephone banking manager. These include women at home - for whom a visit to a high street bank might involve manoeuvring a push chair on and off the bus or driving several miles and then trying to find a safe place to park - as well as career women trying to find time for banking business as they juggle their home and working lives.

"Phone banking works because it offers instant delivery of a wide range of services during the hours when conventional banks are shut," says Ms Cooper. "Women, in particular, appreciate being able to bank from home or work at a time which suits them, which may not be during high street banking hours."

Early next year the group - which is converting from a building society to a bank - will unveil plans for online PC banking, enabling customers to check balances, transfer funds and pay bills from their desktop or laptop computer.

The business has its origins in the Telecare account, launched in 1986 by Girobank, now part of A&L. Girobank was one of the pioneers of telephone banking, along with Bank of Scotland, which has been offering not just telephone banking but PC banking since 1985.

Bank of Scotland Direct offers banking services round the clock, and 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 for pounds 3 a month.

Number two in the telephone banking league is First Direct, launched by Midland Bank in 1988. Symbolically, it opened for business at one minute past midnight on a Sunday morning, and today takes 30,000 calls a day, has more than 630,000 customers, and attracts new ones at a rate of 12,000 a month.

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 pounds 250 standard.

NatWest takes a distinctive approach with Primeline, offering what it calls relationship telephone banking. This is an effort to combine the efficiency of a call centre with the kind of personal relationship you might build up with staff at your local branch if you visit it regularly.

With most telephone banking operations, your call is initially handled by the staffer who takes your call and who can, if required, hand you over to a specialist for loan or mortgage service. In contrast, when you open an account with Primeline, you are allocated a personal account manager. For routine business, you can speak to whoever takes your call, but if you have a worry, or some complicated business to discuss, you can talk to your personal manager.

Senior NatWest management acknowledge that Primeline was initially a "toe in the water" operation. But NatWest is now undertaking a significant expansion of the operation, with a target of 100,000 customers within two years.

Not all telephone banking services come from organisations that have traditionally been regarded as banks. Many of the personal finance giants of continental Europe combine the businesses of banking and life assurance, and so are known as "bancassurance" companies.

Friends Provident, for example, has recently added an instant access deposit account for policy holders, combining competitive interest rates and ease of access. Tony Barnes, sales and marketing director, says that many customers with maturing policies have 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 bigger scale for the Prudential, Britain's largest life assurer, which launched its new bank on 1 October. The Pru currently pays out a staggering pounds 1bn every year on maturing endowments, and arranges policies that provide financial backing for bank and building society mortgages worth a further pounds 700m. Its goal, simply, is to retain as much as possible of this cash in its own banking operations.

And the big event in the early part of next year, which all the banks and other institutions are watching with interest, will be the launch of Sainsbury's Bank combining a trusted high street brand and presence with what promises to be an extremely effective telephone operation.