Parveen Bansal spoke with Hans Verkoren, member of the Executive Committee Europe and global head of ING Direct, about the bank’s successful expansion into eight countries.Becoming a leading global provider of financial services is a dream for most banks but not for ING. Born from a first-of-its-kind merger of an insurance company and a bank, the Dutch bank is clear about its mission to “become a leading global, client-focused, innovative, low-cost provider of financial services through distribution channels of clients’ preference”.

ING (formerly known as Internationale Nederlanden Group) was the result of a 1991 merger of insurance company Nationale-Nederlanden and banking company NMB Postbank, Holland’s third largest bank. This was the beginning of the group’s aggressive expansion through several large international mergers and acquisitions, as well as by autonomous growth.

Despite much scepticism from observers, ING has successfully promoted and pursued the bancassurance strategy with many of the acquisitions driven by the asset management and insurance business. The strategy has been successful in delivering a full range of integrated financial services to customers, ranging from banking, insurance and asset management. ING has gained wide international recognition as a specialist in three fields: insurance in emerging markets, direct banking in mature markets and pensions.

Direct success

Particularly successful has been the bank’s expansion to developed markets through the direct banking ventures set up there. Speaking with The Banker, Hans Verkoren, global head of ING Direct and head of retail financial services at ING Europe, explains: “In 1995, we decided to export our retail banking experience and best practice from Postbank to countries outside the Benelux region.”

However, the first hurdle was to establish a global brand that was easily recognisable and robust. “Whereas in the Netherlands, Postbank was a household name, it was not a brand that was well recognised in other countries. The bank decided to use ING and the lion logo to establish itself as a visually recognisable brand in other countries,” says Mr Verkoren.

Drawing from his extensive experience at PostBank, in 1995 Mr Verkoren initiated a direct banking venture for mature banking markets outside the Netherlands under the brand name of ING Direct, except in Germany where it is known as DiBa or DirektBank.

The direct banking concept is built on the idea that managing financial affairs should be convenient for the customer – “as convenient as having a cup of coffee”. In 1997, ING implemented the first international direct banking pilot project in Canada. “In mature markets the branch banking market is highly saturated, and the demand for convenience banking is high. Our strategy addresses the need for convenience and aims to offer banking services in a cost-efficient manner.”

Essentially a low-cost banking operation, direct banking and marketing constitutes the use of the call centre and website without support from a branch infrastructure.

Starting from a zero footprint in a foreign country with an unknown brand name, for ING Direct the role of aggressive marketing was key. Data from all its systems is used to direct marketing spend. To increase visibility and brand awareness in the foreign countries of operation, ING Direct uses locally focused multi-media marketing campaigns.

Product value

Focusing on the product value rather than the company, the marketing campaign was so successful that 80,000 customers were signed up by the end of the first year, with an average of about 140,000 customers each year. The company has almost one million customers to date in Canada. Each customer is said to have an average of E10,000 in the savings account, which is the primary product offering used to entice customers.

Leveraging its low-cost base, ING Direct uses a high-rate, no-fee, no-minimum savings account as an enticing entry product for customers. “We are able to offer highly competitive rates because, unlike the traditional banks and building societies, our operating costs are truly low because we don’t have expensive branch operations to maintain,” says Mr Verkoren.

After acquiring a customer, other financial products, like mortgages, mutual funds, e-brokerage, pensions and life insurance are cross-marketed to them. “People are generally open to opportunity and will take note of a desirable product, more than a desirable bank name.”

Mr Verkoren stresses the importance of clever, localised and eye-catching marketing techniques to drive interest in the products. Clever media marketing is proving highly successful so that the brand recognition is growing to around 80% in each country.

Another strategy Mr Verkoren uses to improve awareness and increase visibility of ING Direct in the target countries is to open a low-cost internet cafe where customers can drink coffee, check their e-mail or do their banking. However, no cash is handled in these cafes and only cheques can be paid in.

“While keeping our operating costs down is important,” says Mr Verkoren, “we also do not believe in internet-only banks. Some sort of physical presence is necessary in order to establish trust with the customers and continue to acquire new customers.”

The bank tries to select the most cost-effective locations for these cafes. In the US, there are cafes in Manhattan, Los Angeles and Philadelphia. In the UK, there is a call centre building and cafe in Reading. In Canada, there are cafes in Toronto and Montreal.

“These are not branches as such, they are single points of contact that offer local customers the trust factor and shows local commitment of the bank,” says Mr Verkoren.

Good reception

After the success of ING Direct in Canada, the bank has subsequently opened up in seven other countries where the reception has been as good. In total, the eight countries share almost eight million customers; the largest share comes from DiBa in Germany with more than 3.5 million (including the million customers of the direct bank Entrium, which was acquired and merged with DiBa in July). Since opening in Spain in 1999, ING Direct has acquired more than 600,000 customers, doubling the number it had in April 2002. And in Australia, also set up in 1999, there are about 580,000 customers, a 138% increase.

Having only set up there in 2000, the bank has – impressively – acquired more than one million customers in the US and almost 300,000 in France. ING Direct Italy, set up in 2001, has about 325,000 customers today compared with 102,000 in 2002.

Most recently, in May 2003, the bank opened up in the UK, where in two-and-a-half months 139,000 customers joined, more than 60% via the internet. Mr Verkoren says: “Of new customers in all eight markets, an average of 40% and more each year join the bank using the internet channel,” he says.

“Unlike some other direct banks, we do not give preferred conditions to customers for using the internet as opposed to the call centre.”

Good profitability

“Out of the eight countries in which the bank is operating, five are already making good profits, having passed the the break-even point after three years, and are now making returns well above ING Group’s hurdle for returns on investment,” says Mr Verkoren.

He expects the UK to achieve profitability relatively faster than other countries because of the fast uptake, as well as the higher than average savings deposits. Despite some country operations not having broken even, Mr Verkoren says the losses are still lower than the profits made from the other five countries.

Mr Verkoren says the low potential savings average is a key barrier to the introduction of the direct banking model in the emerging markets. “If the savings average is below a certain threshold, say E10,000, then the operation does not break even.”

One factor behind the bank’s success in foreign markets is that both the marketing and the operations are locally focused. “To deliver and maintain a level of local familiarity, ING Direct has call centres and back office operations located and staffed locally in the different countries where they operate,” says Mr Verkoren.

He stresses that, although this may be considered a costly strategy, it is key in enhancing and developing the trust of prospects and customers. “There is a great element of trust with online banking, and therefore it helps to have a locally established back-office and call centre function to allay customer fears. Although ING Direct is growing rapidly and the number of customers is increasing, growth in the call centre infrastructure is not necessary – contrary to common belief,” he says.

“At the same time as new customers come on board and use the call centre, many of the existing customers are migrating to the internet channel, so that there is no net increase in the use of the call centre and therefore there is no need to expand the call centre operation.”

And because the proportion of internet transactions and customers acquired through the internet is increasing, ING Direct can grow without increased support costs.

Smooth operations

Mr Verkoren stresses the importance of IT to the smooth operating of the bank. “Having an efficient back office and low operating costs enables us to offer highly competitive rates. Unlike local banks, which are unable to compete effectively, as they are burdened with high operating costs resulting from the need to support branch networks and inefficient back office processes.”

ING Direct’s strategy has been to replicate the proven and successful information technology and systems from its Canadian first operations, which were partly an upgrade of the Postbank systems in Holland. “The same modular combination of back office, front office and middleware systems is used in the different countries, only modified to fit the local requirements,” he says.

Low operating costs together with effective marketing and cross-selling result in low acquisition costs giving ING Direct a winning strategy enjoying about E90bn in customer funds and a customer attrition rate at less than 5% a year.

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