Personal Finance - Banking goes into the 5th dimension

How did you pick your bank? A depressingly large number of us would answer (a) my parents banked there or (b) it was the nearest bank to my college.

And that decision is the one we stick with. The banks know it is almost impossible to tempt people to swap their current account, so they have to offer something pretty special to make their offers stand out. Their inspiration is First Direct, which does not target students but has managed to pick up 880,000 customers, all of whom have switched from other banks.

First Direct’s formula for success was efficient telephone banking. The demand for phone banking was there, but First Direct was the first bank to tap into pent-up demand. About 10% of UK banking business is now conducted over the phone.

Most of the other banks now offer phone banking, although some services are token offerings. A few have invested heavily in PC and Internet banking (see table for the best offerings). If you are unhappy with your bank, it’s worth checking what the competition is offering in these areas. Banks with useful phone and PC/Internet banking initiatives include First Direct, Barclays, the Co-Operative Bank, and the Royal Bank of Scotland.

Don’t be put off by the fact that some banks do not have many (or any) branches. Many existing branches will close down in future and we will deal exclusively on the phone and online. (So you may as well get used to it!)

Roger Miles, of the British Bankers’ Association, says the changes are responses to customer demand, and no-one is being forced to change their banking habits: ‘People’s usage of banks is changing. They prefer to get their cash from a hole in the wall, they prefer to bank over the phone, and they are using the Net and PCs.’

To complement telephone banking, there has been a massive growth in the number of ‘remote’ ATMs: cash machines at supermarkets, convenience stores and railway stations.

Some of these machines charge a premium for the service – Link network cash machines are being rolled out into late-night Spar shops. They charge users #1 per withdrawal, regardless of whether or not the customer has a Link cash card. If you are looking for a combination of phone banking and easy access to cash machines, the Royal Bank of Scotland allows its customers free access to every ATM run by the high street banks and building societies.

You may not be aware of some of the ‘premium’ bank accounts, such as the Robert Fleming Classic account and Citibank’s current account. These deals are worth looking at – they are aimed at professionals and offer telephone banking plus better ‘perks’ than ordinary accounts.

So is your local bank branch doomed? Perhaps. There were 13,788 branches of the top ten high street banks back in 1989. By 1997 that had gone down to 11,776 – and 1,630 of those were ex-building societies turned banks. More building societies are likely to be taken over by banks in future, and duplicated branches will be shut down.

But the BBA’s Roger Miles says some new branches are still being opened, in line with changing patterns of business. ‘A bank branch is like any other shop: it needs a volume of customer business to stay open. Several hundred new branches have opened over the last two to three years; that reflects the fact that new population and business centres are springing up – such as London’s Docklands.’

For those accountants who still value their relationship with staff at their bank, the trick is to pick a branch in a place that is busy, and likely to remain so in future.

Most of the high street banks and some building societies offer telephone banking, but some services are more comprehensive than others. You must decide whether you want to bank exclusively over the phone, or keep a branch-based account and have the phone as an ‘added value’ service.

The Co-Operative Bank offers a service similar to First Direct, with many customers banking exclusively over the phone. The Co-Op is the only bank to have an explicit ethical policy, so it should be the first choice for those concerned about other banks’ involvement with third world debt and loans to oppressive regimes.

The Royal Bank of Scotland has more than 600,000 customers signed up to its telephone banking service. It is complementary to the branch network, so you have to speak to branch staff to arrange an overdraft, loan or mortgage. But you can use the phone to pay bills, set up and stop direct debits and standing orders, and schedule in future bill payments up to 90 days in advance.

A word of warning: accountants are prime targets for banks’ ‘premier’ current accounts. You have probably been contacted already and urged to swap to Barclays Additions or Lloyds Gold Service. These accounts charge a monthly fee and in return offer you a range of perks. NatWest’s Advantage Premier account, for example, costs a whopping #12.50 a month but you do get a personal banking manager and an authorised overdraft rate of 10.47% (instead of 17.8%). Telephone banking is cited as one of the perks, but you can get this from a normal, free NatWest account.

Many people believe these charging accounts are the first move in a campaign to get us all to pay for our bank’s most basic services, so you may want to resist on principle!

If you are searching for a current account with telephone banking and perks, the Robert Fleming/Save & Prosper Classic account is a better deal than those offered by the high street banks. It is free, and aimed at people earning #25,000 or more a year. All banking is done over the phone and there is interest if you are in credit, 1.41% for #1-#5,000 and 2.68% on #5,000-plus. It’s not much, but high street premium accounts pay much lower rates of interest.

Using the Net as your ‘branch’

Most of us are happy with the phone but many people still have lingering doubts about financial transactions over the Internet. How safe is it?

‘To break through our encryption code would take longer than the known age of the universe,’ predicts a confident Jayne Goodwins at the Royal Bank of Scotland.

Citibank and the Co-Op also offer Internet banking sites. This is a fairly new service, and at the moment Citibank offers the widest range of Internet banking choices.

First Direct claims its PC banking is more secure than a website. Users enter through an Internet browser, but are then linked to the bank’s own server. This means you can access your own bank records. Barclays offers a similar deal. You can buy Barclays own software (#30) or access your accounts through Microsoft Money software.

There’s also a Barclays Internet service, but it only offers a limited range of options (such as checking your account) at the moment.

Citibank customers can download their personal financial data into financial management software (using Quicken and Microsoft Money) – a useful time-saver for accountants in a hurry.

On the box: future of banking?

Midland – now re-branding itself as HSBC – has decided not to put resources into phone and Internet banking at the moment. Instead, the bank is piloting the British Interactive Broadcasting (BIB) system for owners of Sky digital television systems. BIB should be ready to roll out this autumn, based on a ‘smart’ remote control which will allow users to check their balance and pay bills, as well as shopping and making travel arrangements.

For those who like to bank in the kitchen, there is even a prototype of a microwave bank. Customers can check their balance as they watch a baked potato cook. Somehow, though, that one seems unlikely to catch on.

 MENU OF SERVICES ON OFFER
 'Full service' means you can run all your financial affairs over the phone
 or Internet. A 'branch-led service' means you have to hold a branch
 account and speak to them to take out a loan or overdraft.
 Bank              Phone service   PC/Internet                    Notes
                   (Full or
                   branch-led)
 Barclays          Full, 24 hours  PC (#30 initial)
 (0800) 000097                     Limited Internet service,
                                   #15
 Citibank          Full, 24 hours  Full Internet service (free)   Must earn
 (0800) 005500                                                    #30K+p.a
 Co-Op             Full, 24 hours  Full Internet service (free)
 (0345) 212 212
 First Direct      Full, 24 hours  PC banking (free) to
 (0800) 482448                     bank's secure server
 Fleming/Save &
 Prosper Premier   7am-11pm full   No                             Must earn
 (0800) 829100     service                                        #25K+p.a
 Royal Bank
 of Scotland       24 hours        Internet service also
 (0345) 222345     branch-led      branch-led (free)