Will B2 trigger a domino effect?

Online and direct banks are in trouble. Faced with the dilemma of whether to run loss-making enterprises or ditch them and risk damaging the brand image, how long will it be before others go the way of B2?

Two years ago, two direct investment companies were propelled onto an unsuspecting UK market: B2, backed by Barclays Bank, and Egg, supported by Prudential. Both claimed to be innovative, embodying clarity and security, designed to appeal to consumers who were wary of the stock market but who wanted to make more of their money.

Their differing fortunes should provide a classic example for all marketers working on the launch of new services or products – no matter what sector they operate in.

Last week, following months of speculation, Barclays chiefs are understood to have finally decided to let their operation “wither and die”. The move is in stark contrast to the Prudential’s Egg, which has been credited with revolutionising the sector, although it too has been feeling the heat in recent weeks.

A B2 spokeswoman admits the company is shifting its focus away from recruitment to concentrate on existing customers. “We are also starting to take more funds into local Barclays branches,” she adds (MW last week). It is reported to have attracted only 15,000 customers.

Barclays has always vehemently denied previous reports that B2 was struggling, but the fact that it is not actively looking for new customers has been seen as an admission of defeat.

One marketing director of a rival high-street bank says: “B2 has been on the skids for months and we have known for some time that it was shutting up shop, despite the strong denials.”

The operation, launched in May 1998 with its Advanced Savings Account, was aimed at a new type of investor. The launch followed extensive research by Barclays that revealed there were 5.5 million active savers who could earn more by switching to investment products, such as Peps and unit trusts.

Banks Hoggins O’Shea/FCB unleashed a high-profile &£15m launch ad campaign, featuring actor Richard E Grant, walking along a beach. The ads looked highly polished but were criticised for being too abstract.

One director of an ad agency says: “In advertising, the words ‘glossy’ and ‘well shot’ are euphemisms for ‘no substance’ – and that was the main problem for B2. You can spend a fortune on ads, but if the product is flawed and there is not a powerful proposition, it will never be a success.”

Egg, on the other hand, had the “double whammy” of clever advertising and a market-breaking product. It launched an &£8m multimedia campaign through HHCL & Partners, which distanced the brand from the “untrustworthy” image of the financial services industry.

The agency used a variety of approaches, from vox-pops to testimonial ads starring celebrities such as Zoe Ball and Linford Christie. Egg swiftly signed up about 1 million customers, securing nearly &£8bn in deposits.

One financial services consultant says: “Egg launched with a category killing rate, which simply blew away all the competition.

“B2 didn’t have a chance – it didn’t have a simple proposition. The advertising didn’t help much either, it might have looked nice but most people were left thinking ‘what on earth is all that about?’.”

B2 then launched a major direct marketing campaign through financial specialist agency CCHM and earlier this year ploughed up to &£3m into a last-ditch marketing offensive, again using Richard E Grant, to relaunch the business.

The campaign, which included TV, posters and national press, coincided with its launch of a high-interest deposit account to fight back at Egg and Standard Life Bank. But sources say the relaunch failed to provide the necessary boost.

One City analyst says: “No financial services company likes to lose face and admit it has lost money – what are Barclays customers supposed to think when their bank is seen to blow more than &£20m on ads with no return?

“Getting general consumers to switch bank accounts is hard enough. But when you are trying to attract consumers at the top end of the market – those who have &£50,000 or more to invest – there needs to be a tangible benefit.”

Wealthy consumers are often “expert” investors, who either study the market very closely themselves or put their trust in independent financial advisers (IFAs). They normally spread their investments around – they’ll go to Charles Schwab for their ISAs, Egg for their short-term investments and so on.

He adds: “But no IFA would have recommended going to B2 because the rate was not competitive. Egg attracted all the hot money by offering the best rates.”

Yet Egg is now finding life a lot tougher and is facing intense competition in the online investment market. The joint venture between commercial bank HSBC and investment bank Merrill Lynch is just one of many entering the sector.

The global bank, which is to be based in London, will target top earners – those who have between $100,000 and $500,000 (&£63,291 to &£316,456) to invest. It will offer a range of accounts, including unit trusts, mortgages, debit card and stockbroking services. Two weeks ago it appointed Lowe Lintas & Partners Worldwide to its $100m (&£63m) global advertising business (MW July 13).

And Lloyds TSB last week appointed Saatchi & Saatchi to handle the &£25m launch of its pan-European online venture Evolvebank.com.

The analyst says: “These new ventures are all after the same market, but they have to offer very high rates to attract investors – whether any of them will ever make any money is another matter.”

And that last point seems to be the most portentous. Nearly all of the online and direct banks are running at a loss – how can the likes of Cahoot and Smile possibly make money when they are offering such low interest loans and high interest investments?

It seems that Barclays, whose B2 was neither the best nor the cheapest, was simply not willing to run the business at a loss. How long it will take to break the other banks, remains to be seen.


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