By Reed Stevenson
As more and more people turn to the Internet to pay bills and shop for
goods and services, Dutch financial services group ING has carved out
a lead in what was once considered the most elusive of online
ING Direct, the Internet banking arm of ING that operates in nine
countries, is by far the world's largest online bank, boasting nearly
17 million customers and about 200 billion euros ($253.5 billion) of
In every country that ING Direct operates -- Canada, Spain, Australia,
France, the United States, Italy, Britain and Germany -- it is the
No. 1 online bank.
"For ING Group, it is one of its main growth engines," Dick Harryvan,
the ING executive board member responsible for ING Direct, said in an
interview. "Today we are approximately 30 percent of the balance sheet
of the bank."
ING Direct has become such a key driver of the bank's earnings --
profit grew 41 percent in the first half of 2006 to 359 million euros
-- that investors are also beginning to focus more closely on its
strategy and direction.
Key questions include how quickly ING Direct will expand its product
offerings in countries where it operates, and what new markets it may
enter. Although ING Direct doesn't operate in its home market to avoid
cannibalizing a decades-old retail network, it is eyeing new markets,
most notably Japan.
"The advantage they have in terms of costs is significant," said
Duncan Russell, an analyst at Fox-Pitt, Kelton Ltd. "They're also
offering better products than their competitors."
According to ING's own data, ING Direct's operational costs excluding
marketing are a fifth of that of a traditional bank branch. Investors
have bid up ING's shares -- they're up 36 percent his year and are
trading at 10.4 times projected 2006 earnings, compared with 9.7 for
nearest rival ABN AMRO.
Instead of a branch network, ING Direct relies on computers servers
humming in data centers to run its online bank, where customers can
sign up, authenticate and manage their accounts online. Apart from
management and technology staff, ING Direct has call support staff and
a few retail "cafes" for promotion.
Typically, ING Direct will enter a country by only offering an online
savings account with an attractive interest rate. After attracting
customers, the online bank then expands it product offerings into
areas such as term deposits, mortgages, mutual funds and loans.
In select countries, ING Direct also offers insurance, pension and
checking account services.
Despite ING Direct's impressive growth -- deposits grew a hundred-fold
from 2 billion euros in 1999 -- Harryvan said that consultants told
ING that its chances of success were slim when it launched its first
pilot in Canada in 1997.
"McKinsey told us it wouldn't work," Harryvan said.
Ironically, few consumers in the Benelux have heard of ING Direct,
which has built its brand in the United States, Britain and other
markets with its splashy, orange-themed advertising.
Despite being headquartered in the Netherlands, Harryvan said that ING
Direct had no plans to enter its home market or neighboring Belgium.
The main criteria for ING Direct when it enters new markets is a high
Internet usage rate, a high savings rate or a willingness to move
money between accounts.
"We think in a market there should at least be 100 billion euros in
savings," Harryvan said.
As a result, the most potentially viable new markets are Japan, South
Korea, The Netherlands, Belgium, Switzerland and Sweden, said
"Japan for us is the biggest strategic decision in terms of moving
forward," Harryvan said, "We have researched the Japanese market
already four years ago and to be frank we have a team on the ground
there looking at the whole market."
Indeed, most analysts see Japan as an inevitable next step for ING
Direct, with its high savings rate, a developed inter-bank payments
system and a recovering economy with depositors hungry for returns
after a decade of near-zero interest rates.
The world's second-largest economy has already experimented with
online banking. Largest is eBank with 1.65 million customers and even
consumer electronics group Sony has an online bank. Among foreign
entrants, Citigroup unit Citibank also offers Internet banking.
In a country of 128 million people and nearly 7 trillion euros in
deposits -- the opportunities in Japan are huge, even despite the
"We know that Japanese consumers are absolutely brutal when it comes
to quality. You've got the get it right the first time," Harryvan
Copyright 2006 Reuters Limited.