ING Direct quietly extends global reach
By Michael Steen
Published: January 4 2008 02:00 | Last updated: January 4 2008 02:00
Consistency seems to be Dick Harryvan's favourite word. The ING board member responsible for ING Direct believes that sticking to a simple recipe has allowed the Dutch banking and insurance group to build the world's biggest direct bank almost unnoticed.
Launched just over 10 years ago in Canada, ING Direct has grown to 20m customers in nine countries with deposits of €210bn ($309.4bn) and mortgages of close to €90bn. Everywhere except Germany that growth has been organic, and in many markets the ING brand was all but unknown previously.
ING Direct is among the top nine retail banks measured by deposits in all of its markets, except the US, where it ranks 21st. In Germany's fragmented banking sector it is the third biggest by customer numbers after Germany's Postbank and Deutsche Bank.
ING Direct contributed 7 per cent of group profits in 2006.
Its core product - a savings account - is operated by internet and telephone call centres to avoid the costs of branch networks. But gradually ING Direct has added products, starting with mortgages.
"Thinking up products is easy," Mr Harryvan told the Financial Times. "That's usually one of the big problems of older banks and insurance companies - they have too many products."
Of the 300 products a bank might market, "if you ask them how many products deliver 80 per cent of revenue, it's always less than 10 in the retail space", he says.
ING Direct is to open in Japan this year, but after that the focus will be going back to existing markets and adding more products to cover the five major needs of consumers: savings, mortgages, brokerage, consumer credit and current accounts.
Mr Harryvan says he wants to offer 10-20 products across those areas.
ING has built up the business with little or no attention globally from rivals, although in individual markets competitors have offered similar direct savings accounts. "They don't stick with it consistently, which is what we do," Mr Harryvan says.
The dissenting view is that only a financial institution in the mature, low growth markets of the Low Countries could see savings accounts as an attractive growth area, especially since flatter yield curves have depressed margins.
"Perhaps if you're HSBC you say, 'Why do I need to bother?'," says Chris Hitchings, an analyst at KBW.
"[But] if we look back in five, 10 years' time and discover that deposit-taking is only 20 per cent of ING Direct's profits and it's making stackloads of money doing share trading, mutual fund supermarketing, payment accounts, mortgage accounts and so on, then it may well be that the HSBCs and Citi Corps of the world will kick themselves."
Direct banking gives ING Direct more than 100 basis points advantage in terms of operational costs to retail balances compared to traditional retail banks, Mr Harryvan believes.
ING Direct's operational costs to retail balance ratio is 37-38bp compared with 153bp for a traditional retail bank operating a branch network, he adds.
When ING launched direct banking it had years of experience in the Netherlands as Postbank to fall back on. Postbank, which still dominates Dutch retail banking, launched its phone and home banking service in the 1970s.
Mr Harryvan, who joined the insurance arm of ING straight out of university, came to the direct bank initially as general manager, bringing experience setting up new businesses in Hungary and the Czech Republic in the early 1990s.
"Banks typically don't set up retail greenfields," Mr Harryvan says. "Setting up a new retail business where you have to invest heavily in infrastructure and establish the brand is really not something banks have a mindset for."
The bank plans for start-up losses for the first four years in a new market and only enters countries with savings of €100bn, assuming that it can capture €5bn, which will allow a retail business to be profitable in its own right.
It has also chosen not to enter the Netherlands and other countries where it already has branch operations to avoid cannibalising its own sales.
Although ING's corporate orange appears everywhere, the branding differs across markets.
An orange globe in the US, a life ring for the UK, but a large pumpkin for Italy. ("It's orange, it's healthy, it's growing," Mr Harryvan explains.)
Beneath those superficial differences are identical back office and computer systems (except in Germany where ING acquired DiBa bank in 2001) and similar products that have been approved centrally. The other general rule has been to start off with a margin of up to 40bp and raise this to 70bp-80bp within two or three years. This backfired in the UK, where ING Direct failed to follow the Bank of England base rate increases on three out of five occasions and watched £3.5bn in deposits leave in the third quarter. The withdrawals pushed the UK unit to a loss. Lindsay Sinclair, head of ING's UK operations, left the company in early December.
"We learned that in the UK there are a lot of rate tarts around," Mr Harryvan says with a smile. In future ING Direct will more closely track the Bank of England.
But the laid-back Dutchman is undeterred by the glitch at its British operation. As it adds more complex and "stickier" products such as current accounts, Mr Harryvan remains bullish about the group's global ambitions.
"We think the reach of the strategy is really quite enormous."
Copyright The Financial Times Limited 2008
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