The enabling technology, the telephone, allied with enormously powerful computers, looks like rendering the traditional branch-based networks of the banks and, especially, the building societies, largely obsolete. What has surprised observers most about the transition from face-to-face financial services provision to phone transactions is the speed with which the public has taken to the new order. We want cheap, efficient services and couldn't really care less who provides them.
Association of British Insurers statistics suggest that, in 1994, 21 per cent of all personal insurance lines were transacted on a direct basis. Nikko Europe, a broker that recently issued a study of the direct financial services market, believes that figure could double by 2000. Providers of retail financial services will plainly be hugely disadvantaged if they don't exploit the direct market to good effect.
Products will need to be standardised to simplify the task of advertising in the media (the main route to attracting new business), and service will have to be exemplary to hold on to clients in a market where transferring from one supplier to another is as simple as picking up the telephone. Economies of scale will matter, but size will not be everything - more important will be the creation of brands, such as Direct Line, fast becoming the Hoover of financial services.
So who are the winners and losers likely to be in this brave new world?
Royal Bank of Scotland has an enormous head start through its ownership of Direct Line. Its commanding lead in motor insurance means that most people phoning around for a quote will give Direct Line a try first. The bank itself also has less to lose than some of its peers from the intensification of competition in financial markets as its staff and branch networks are relatively small.
TSB is likely to be another beneficiary, thanks to its heavier exposure to the lower socio-economic groups, which bring it more into competition with the building societies - they are much less further down the direct road than the banks. HSBC, through its ownership of First Direct, also has a good toehold in telephone banking, which should act as a blueprint for expanding the service around its global network. Prospects are excellent.
At the other end of the scale, Lloyds' originally good idea of selling Lloyds Abbey Life insurance through its branches, so-called bancassurance, seems to be suffering from fewer people visiting their branches. Cheap distribution is not working as well as expected and is becoming more expensive now that the regulatory regime is getting tougher.
Commercial Union also looks at risk because of its currently highly profitable exposure to UK personal line insurance - 15 per cent of premiums and a useful pounds 80m of underwriting profit in the first nine months of the year. The fast growth in direct sales elsewhere puts this income stream at risk.
The final doubtful stock is Barclays, which enjoys 30 per cent of the money transmission market and a similar slice of the personal loans segment. Given that exposure, it might have been expected that the bank would have moved into direct sales with a vengeance, but it has, in fact, only just entered the fray. Barclays faces the prospect of a significant loss of business to First Direct and others.