Pru joins ranks of phone banking

Prudential, the UK's largest life insurer, yesterday launched its telephone banking arm and offered a guarantee that itsmortgages and savings products would be among the most competitive in the market.

The Pru said it aimed to win back most of the pounds 1bn-plus it paid out each year in maturing policies, money which investors usually paid into saving schemes run by competitors. The insurer also hopes to provide loans to borrowers for whom it currently arranges pounds 700m of mortgages a year with other lenders.

Jim Sutcliffe, chief executive at Prudential UK, said: "By setting up a brand new banking operation, we are able to take advantage of the latest modern technology and apply innovative product design.

"We do not need to sustain the costs of a traditional branch network so our customers will be able to benefit from attractive interest rates."

The company is rolling out two deposit accounts, a High Interest Deposit Account and a 60-Day Notice Account, although further launches are planned. In both cases, the Pru guarantees to beat the best equivalent branch-based products of the top 10 banks and building societies. Mike Harris, chief executive at Prudential Banking, said the guarantee was not applied against postal accounts because the Pru offered a different type of product, including the use of salesmen to help customers.

It also pledged that its mortgages would not impose hidden charges or unfair practices, saving pounds 600 or more for borrowers during the lifetime of a typical pounds 50,000 mortgage.

However, the Pru's launch was dismissed by Direct Line, its prospective rival in the telephone banking market, which claimed that its products were cheaper. Jim Spowart, managing director at Direct Line Financial Services, argued the cost of using phones and a salesforce would blunt the Pru's competitive edge.

"Multi-distribution channels have to be paid for otherwise they destroy the benefits of a direct service," he said. "A product range containing hundreds of alternatives will be complex for both operators and consumers to negotiate."