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BANKING

The world’s internet banker: ING Direct. Interview with Dick Harryvan

ING Direct has built a top-10 retail bank position in eight of the nine markets it operates in. It is is without doubt the most successful internet bank in the world. In fact it is arguably one of the most successful banks of any kind given the rapid and substantial inroads it has made in mature markets.

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Dick Harryvan, ING Direct
“We want to keep it simple so we focus on just a few products. Rather than 10 different savings products we have one. It’s the same with the mortgages”
Dick Harryvan

It is a top-10 retail bank measured by deposits and customer liabilities in every one of the nine markets it operates in except the US, where at the end of 2005 it ranked 28th (up from 45th in 2003).

The bank is now Germany’s number one provider of mortgages, with an astonishing 10% market share for new mortgages, and has risen to become the country’s third-biggest retail bank, measured by the number of customers.

In many ways ING Direct epitomizes the way in which the internet can be used to level playing fields.

Euromoney speaks to one of the chief architects of the business, Dick Harryvan, the member of the board of the Netherlands-based ING Group with responsibility for ING Direct.

What is the secret of ING Direct’s successes?

Clarity. We’ve chosen, contrary to other direct banks and other major banks, to take very clear positions. Rather than offering all products we started with savings and later mortgages, so in the consumer’s mind it’s clear what we’re good at. Other banks just took all their products and put it on the internet so it wasn’t evident what was different about their internet bank.

We want to keep it simple so we focus on just a few products. Rather than 10 different savings products we have one. It’s the same with the mortgages.

Also, it takes just five to six minutes to open an account with us compared with 20 minutes at some of our competitors.

We’ve always tried to keep things simple and transparent. If you look at our marketing, we’re very much product focused. Our advertising always makes it clear to the consumer what’s in it for them. It’s product-focused and looking for a response. We don’t do image advertising per se.

Why has ING Direct succeeded where other internet banks have largely failed?

To answer that I think you first need to understand why ING Direct has succeeded within ING Group. Our heritage is that we’re the result of a merger between an insurance and a banking group. The insurance business has a long history of setting up life greenfields. And it’s well known that a greenfield life business can have up to five years of losses before it starts making money.

ING also operates Postbank in the Netherlands, a bank that was privatized in 1986. Back in the 1970s, however, Postbank had realized that post offices were not very good places for advising people about banking products so we devised the concept of home banking, allowing customers to do all their banking by phone or through written instruction.

We’ve always had the right corporate support. There were years when ING Direct was making losses of $200 million but we stuck through it and today we have a balance sheet of $240 billion and a ratio of operating expenses to assets of 43 basis points and are growing by 3 million customers a year.

The other reason is that most of the internet banks we compete with are typically the subsidiaries of established banks. Starting this kind of bank in your home market, however, is not such a good idea as it leads to internal turf wars and significant cannibalization.

Our approach was also a contrarian one at the time. When we started, everyone thought it was crazy to go in with one product but we thought it was better to keep it simple and make it clear what’s on offer.

We also benefited a lot from Postbank’s expertise in-depth market research. Every new product for ING Direct goes through thorough quantitative market research, allowing us to make good forecasts of potential sales.

The internet has evolved quite a bit since ING Direct started up. How closely has the business’s development corresponded to your initial expectations and original thinking about the business?

We first started thinking about it in 1995 when a colleague from the US brought to our attention how much direct distribution was taking off. We undertook a global survey to find out where direct distribution was hottest and found that it was largely in Anglo-Saxon countries.

We decided to start with Canada in 1997 because it is a large market and only seven hours’ flying time away rather than the 24 needed to get to Australia! In 1999 we opened up in Spain and Australia. We then went to the board and said we wanted to invest heavily in the project and take it to more countries.

The concept has always been more about direct distribution rather than the internet per se. We actually started as a telephone bank and only really became an internet bank in 2000/01 when internet use really took off. We always had people pressuring us to do things like change the ‘e’ in ‘Direct’ to an ‘internet ‘e’ but we never wanted to become a pure internet bank as many customers prefer to know that there is some one real they can talk to. Today 40% of our new customers come through direct mail or telephone enquiries.

Does the opening of ING Direct cafés in cities such as New York and Paris represent a change in strategy?

No, the idea of opening cafés is really an innovation from our Canadian business. We had a huge advert on the side of our office block 20km outside of Toronto and found that we used to get people come by to ask questions only to find that they were in a call centre, so we decided that we needed somewhere nicer to meet customers.

To what extent has the rest of the group benefited from ING Direct’s success?

One of the biggest benefits has been that brand awareness of the group has grown substantially. When we entered the market we found that awareness of the ING brand in many places was less than 2%. Today it ranges between 70% and 90% everywhere and we are now ranked 85th among global brands.

ING Direct has helped put the brand on the map and established it as an innovative brand making a positive contribution to the way the group is perceived. This has enormous intangible benefits.The business has been growing strongly for many years now but do you see this growth continuing at the same rate, or do you think that the limited number of markets suitable for the internet banking model will eventually slow things down or force the model to adapt?

We’re in nine markets today but these nine countries represent 60% of world GDP. For this strategy to work a market needs to have at least $100 billion in savings. ING Direct becomes profitable in a market once it gets about $5 billion in savings. To be profitable in a smaller market would require us to get a huge market share.

In markets such as Brazil or Mexico, which have over $100 billion in savings, the distribution is skewed towards very few customers with substantial savings.

We may add two or three new countries in the future, but our market share of the total savings pool in all nine countries is still only between 1% and 2% so there is still huge potential to grow.

On the mortgages side we’ve only just started.

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