Banking Group ING goes digital

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Banking Group ING goes digital

Dutch banking customers check their balances five times a day on their smartphones. ING is investing in mobile platforms. Technology is playing a vital role, including in assessing creditworthiness.

FRANKFURT, 11 June. The Dutch banking group ING, owner of the internet bank DiBa, is the third largest retail bank in Germany, while its stock market value of €41 billion means it is now worth €10 billion more than Deutsche Bank. Despite these successes, Ralph Hamers, CEO of ING Group, and Roland Boekhout, DiBa’s CEO, are quite open in this interview today that they’re busy catching up: “We’re focusing almost all our investments on improving mobile banking. Our IT processes are going to be equipped to handle more real-time transactions and make our online banking more user-friendly and advice-based.”

ING is clear on one thing: consumer behaviour is changing rapidly. More and more customers are using their smartphones to pay for purchases and using payment service providers outside the banking sector. Rather than believing that banks have already lost the battle for these customers, Hamers is hoping that consumers will ultimately have more trust in the banks’ payment systems than those of the new providers. But he admits that banks may certainly see more business going elsewhere in future. The internet currency bitcoin has shown that there definitely are alternatives to the current money and banking systems.

ING currently has 47 million personal and business customers, looked after by some 75,000 employees. Although the group sees itself as a market leader in the Netherlands, Belgium and Luxemburg, it is currently facing some major challenges. ING personal customers in the Netherlands no longer want to check their bank balances and investments once a week on the internet. Instead, Hamers reports, they are now checking them five times a day on their smartphones. Germany is lagging behind this international trend. As Boekhout explains, German customers check their DiBa balances five times more often on the internet than on their smartphones. But he, too, firmly believes that “Improving mobile banking services is where we’ve got to invest. It’s true that things may be very different in three years’ time. There needs, however, to be a sense of being at the start of a new era, and of trying out lots of things.”

It is unusual to hear bank board members talking so openly about uncertainties in the digital world, even while ING-DiBa is well placed, compared to its competitors, to deal with the challenges ahead. It offers a limited range of transparently priced products through direct, internet channels. Hamers mentions another, maybe initially somewhat surprising reason why banks should be well placed to use ‘big data’ for targeted advertising. “We’ve always analysed data. On retail customer behaviour, for example, to decide how much people can afford to repay each month.” The challenge for the future is to make even better use of data. To spot, for example, when customers first start getting into financial problems and offering them solutions at an early stage.

Is another reason for ING-DiBa’s success the fact it can operate so cost-efficiently because of not having branches? According to Hamers, the group’s decision not to have branches was “not a matter of principle.” He referred to Spain, where ING opened 28 ‘flagship stores’ in the past three years. The bank will continue to have branches, but mainly for advice purposes, and particularly mortgages. The ability to compare prices on the internet and new legislation introduced in the wake of the financial crisis are boosting the trend of banks also offering their competitors’ products to customers in return for a fee. Commerzbank reports that it is using this model successfully in the property financing market. But does it really work? Boekhout sounds sceptical. In his view, it is also a matter of business culture. “A model like that only works if the advice provided is consistent in day-to-day practice and really puts the customer’s interest at the forefront.”

Is Boekhout envious that ING decided to expand its branch network in Spain rather than Germany? The DiBa CEO laughed, saying “As long as DiBa keeps adding half a million new direct banking customers each year, there’s no need for me to take on all the costs of a branch network.” But what if the rate at which DiBa is attracting new customers slows down, and opening branches is seen as the best way to start growing again? “In that case, or if we moved into new markets, where customers want personal contact with an adviser, we certainly won’t hesitate to open branches. But then they’ll probably be new-style branches, like the one we recently opened in Vienna.”

The rate at which DiBa is attracting new customers in Germany is also evidenced by the fact that the bank is not yet certain what it is planning to do with the savings (€104 billion at the 2012 year-end) that customers have placed with it. For the past three years it has cautiously been lending to businesses, but Hamers would prefer to invest surplus funds from Germany in more lucrative markets elsewhere in Europe. However, despite freedom of capital within the EU internal market, the German banking regulators will not allow liquidity to be withdrawn from Germany. Hamers understands this. “I know why the regulators have responded this way to the financial crisis, even if it doesn’t exactly tie in with the concept of Europe. Obviously it would be better for us, as a ‘truly European bank’, if we could use money from various EU countries for lending throughout Europe. But our strategy works this way, too.”

The next step in the group’s strategy is to float its insurance subsidiary, in line with the EU Commission’s instructions. This forthcoming flotation could raise around €2 billion and is likely to be the largest in the financial sector this year. In 2015 ING intends repaying the final tranche of its €10 billion of state aid, as well as paying a dividend to shareholders. ING will then see itself as being in the same league as major European banking groups such as the French BNP Paribas and the Italian Unicredit, which are strong in the personal and commercial lending markets.