Critical Analysis Of Ing Direct

Liverpool John Moores University

Critical Analysis of ING Direct Submitted By Tom Jacob Isa Nadada Gagandeep Gill Abdul Azeez Ettuveettil Shaju Mohan Vagaparambil

Course Name: Module Name: Submission Date: Submitted to: Page 1 of 27

Master of Business Administration International Business And Trade 1st December 2008 Dr. Tim Harris

Contents Introduction & Company Overview............................ 3 Financial Analysis of ING Direct.................................. 4 Marketing Overview of ING Direct 5 Issues and Analysis using 7p’s of marketing BCG Model Analysis

Operations................................................................. Analysis of input/output model Problems of current operations

Possible Solutions........................................................ Recommendation........................................................ Reference.................................................................... Appendix..................................................................... Ratios & Key Figures of ING Direct 2004-2007 Comparison of Different Savings Accounts Share Prices of ING Group & Competitors in FY 2007 Analysis of ING Direct using Porter's Five Forces SWOT Analysis of ING Direct PEST Analysis of ING Direct Seven Ps of ING Direct Marketing Mix

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9 11 12 14 15

Introduction & Company Overview ING Direct reported a decline in „profit-before-tax‟ in 2007. This report tries to gain insight in to the possible causes of this decline. A decline in the financial performance is, more often than not, an indicator of problems elsewhere in the company; be it in operations or marketing. So, we as a group looked in to the current marketing strategy of the company, giving recommendations for the future. The companies‟ operations are analysed systemically and suggestions for improvement are given. ING Direct is the world‟s leading branchless online savings bank, active in 9 countries with over 21 million customers worldwide. It is a subsidiary of the Netherlands based „Internationale Nederlanden Groep‟, one of the world‟s largest financial services organisations. ING Direct started its operations in Canada in 1997 with the aim to become the world‟s most preferred consumer bank. ING Direct quickly gained market share by positioning itself as a „no-frills‟ bank. It offers basic savings accounts with high interest rates with no banking charges. ING Direct focuses on making banking simple for customers by offering a range of straightforward and transparent banking products at low costs, combined with excellent services. The company went through a rapid expansion phase between 1999 and 2004 when it started operations in eight countries. As of April 2008, it is the leading direct bank in each of the nine countries in which it operates. According to the 2007 annual report, ING Direct constitutes to 6% of the group‟s underlying profits. (Source: ingdirect.com) According to Arkadi Kuhlmann, ING Direct‟s mission is to make it easy to save by offering the same great values to everyone. The purpose of the company is to be a servant of an average person, to return to the values of thrift, self-reliance and building a nest egg. A pure savings bank, ING Direct offers consistently great rates and high quality service; by exhibiting a simple, no trick and no catches approach to banking.

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Financial Analysis of ING Direct (For the full ratios & figures used in this section, see Appendix 1, 2 & 3)

From the key figures in the Appendix 1, we can see that ING Direct‟s total income has grown consistently over the period of 2004 - 2006. This decreases by 1.68 % over the financial year of 2007. While this can be a cause of concern, a quick look at the market space (Appendix 3) shows that the banking sector as a whole had a bad year in FY 2007, partly due to the sub-prime crisis in U.S. Traditional heavy weights like Barclays (-33.42 %), Lloyds TSB (-14.24 %) and HSBC (-3.20%) have all experienced a down turn in share price over the same period. Even ING Group‟s (-7.01%) shares have been hit by the market conditions. If one is to look at ING Direct‟s market sector, it can be seen that in that FY 2007, ING Direct shares have lost 26.98% of its value. But the shares of E-Trade, a direct competitor of ING Direct, fell almost 80 % in the mean time. According to these figures ING direct have done better than its competitors. One should also take in to factor that, the market competition was much more intense during this period and ING Direct is no longer a marker leader in saving rates (Appendix -2). According to ING Direct‟s figures, we can see that the underlying profit before tax which was growing until FY2006 has gone down by a margin of 23.6%. This is mainly due to the massive increase (+7.8 %) of operating expenses. Expenses have increased over the period partly due to the increase in the number of staff the bank hired to achieve rapid growth. Expansion of ING Direct to Japan and the restructuring of the Benelux activities also caused the operating expenses to increase. We should also take in to consideration the fact that in this fiscal year interest margin rate narrowed from 0.89% to 0.75% as a result of higher central bank rates. These are the main causes for the increase in Cost/Income Ratio which jumped from 0.66 to 0.73 (Appendix 1). ROC after tax improved due to lower tax charges supported by a tax asset in Germany. Strategic decision to maintain the competitive client rate in challenging markets left the income lower and a similar net profit ratio, 24.13. Excluding the UK figures, where the repositioning was taking place, the change in net profit could be positive. Also investing building and other investments have increased the depreciation and amortisation expenses. In spite of falling net profit the rate of return on the capital is strengthening from 11.8 to 14.3. This reflects the efficiency of operations achieved.

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Marketing Overview of ING Direct Position Analysis of ING Direct Using PEST, SWOT & Porters five forces: ING Direct is facing fierce competition from its competitors in its market segment with its cost leadership strategy being adopted by other banks. The bank tries to keep the competition to a minimum by focusing on its core products. The bank operates in a segment where customer loyalty is nonexistent. The Customers are concerned only about interest rates & quality of service. Although the internet banking sector has high growth potential, due to present economic conditions, growth may be stagnant for some time. ING Direct has passed the storm almost unscratched and this fact improves its image as a reliable online bank. The Brand ING is known to be in more than 50 countries so it augments as an opportunity for geographical expansion. ING Direct has used technology effectively to stay ahead of times. It has kept cost low by re-engineering basic products like mortgages. (For details, see Appendix 4, 5 & 6)

Issues and Analysis using 7p’s of marketing. (The 7Ps of ING are identified in Appendix 7) 1) Product: ING direct has mainly four products Home Insurance, Savings Accounts, Investment and Mortgages. The number of products is far less than the traditional bank. It does not offer cash cards for their customers. The main characteristic that sets it apart from traditional banks is that its products can be accessed through the internet. There are some positive aspects; it saves cost and time for the bank and customers respectively. But the negative aspect for the bank is that it loses opportunity to create customer relationship due to lack of human interaction. Traditionally ING Direct has relied on high interest rate to attract customers .The problem with strategy is that it is difficult to sustain and can be easily copied by other banks. And also, it does not provide emergency access to the money 2) Price ING DIRECT was offering the highest interest rate on savings and low interest rates on loans but now there competitors (Refer Appendix 2) offer better rates. There are chances customer will switch to competitors because of no loyalty. The reason might be poor financial outlook for year to come (www.thisismoney.co.uk) and it could be due to higher central bank rates. A shift in customer target could also be another reason. 3) Place Internet is the only place where the bank exists and the success and efficient website is the key for the success of ING Direct. As in a shop where the display of products is the key for an impulse purchase, a good web design and eye-catching display of product links is essential for success. At the moment the web design is very simple without use of any java or flash. Another limiting factor for this type of place (internet) is that only computer literate can use the bank Page 5 of 27

4) Promotion ING Direct have a good promotional budget, it allocates one third of its budget to marketing programmes. .It uses all channels of advertising like internet, television, outdoor advertising etc. It also has innovative promotion campaign for e.g. „Save your money at the movies‟ the promotion programmes are highly successful. Promoting a bank through cafes was a novel idea which met with great success. The problem at the moment will arise due to financial crisis as they might not be able to spend on promotions at least in the short term. If the same amount is spent it will not give good results as previous years. ING Direct needs to find new cost effective ways of promotion. 5) People The use of people or employees is limited in ING Direct. Although, they train their staff more than a traditional bank does. The products that are offered by the bank are automated. The main contact points of direct customer interaction are cafes and over the phone through call centres .In the cafes it has excellent customer service staff who can discuss financial product while serving a coffee. Call centres staff are allowed to go live only after considerable training. ING has policy of lowering interactions between its staff and its customers. The reasons for call centre limitation is that ING Direct does not wants its customers to spend money for services they will be offered. The down side to this is that some customers might be confused as if the bank does not really care about its clients. It will then create mistrust between client and company which will lead to suspicion, that generates anger, which leads to separation. 6) Process ING direct has the most cost efficient process benefits of which is being passed to the customers. The process is design in such a way that it is major part is automated and does not need any human interaction. Website does not holdup people in lines so it delivers a professional service. A transfer of money to traditional bank will take three working days to reach. This is also a possible bottleneck in the efficient customer service. The business model of keeping the interaction at smallest possible time may lead to customers feeling poor service. 7) Physical Evidence ING group as whole and its cafes provide the evidence o ING Directs existence. It also gives customers a fair idea of the groups‟ service standards. .ING Direct does not have a physical presence which will create doubts in some customers who are no familiar with group.

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BCG Model Analysis:

Market growth

?

Dogs

Savings Account

Mortgages / insurance Cash Cow

Market Share

Cash Cows: Savings account of ING direct was in the star region but as market matures the savings accounts then runs down from their market growth position to cash cow region. The savings account is the main source of cash flow in ING Direct. Savings account was the first product which ING introduced in the market after careful research. Stars: There is no star right now in ING direct product portfolio and companies need to have some balance portfolios for their continuous growth and market expansion. As time passes, there is a chance for the product in the Questions mark (?) becomes star. This is referred to as new product in which company invest their resources for development. Question Mark: This is also referred to as problem child. ING direct have launched new innovative product “Share Builder”. This product have low market share but potential to grow, because of current market condition which is outside the control of ING Direct. Due to economic downturn share builder may not perform well. But, it has potential to become a star after some time when economic crises are over. Share Builder may also become a dog after some time if the investment of ING Direct does not recover in time, and thus result in loss of investment. Dog: Mortgages offered by ING direct were cash cows but as market moves into different stages, the mortgages moved into dog stage. This is because of heavy investment in these products with little or no return on investments due to loses in global market.

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ING CURRENT BCG ANALYSIS

Market growth

? Share Builder, Credit Card?

Dogs Mortgages / insurance

Savings Account Cash Cow

Market Share

Figure 2

Conclusion and Recommendation The company should launch new product(s) that can quickly become star(s). ING Direct should have more cash cows and star products that will give strength to the company portfolio and it will help in revenue generation. More products in offering will differentiate it from competitors. As we can see the ING Direct product portfolio is not a balance one,(Because of limited products finance can a issue in future )become we can suggest to ING direct for stars and more cash cows they will develop new products like credit cards or cash cards for their future implication. Products also consider who gives strategically ING direct a competitive advantage over competitors.

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Operations ING Direct is an online bank that delivers it services through the internet. The customers can access the services of the bank mainly through internet, phone, and cafes which are limited to certain locations. Customers can lodge complaints to the bank wire, mail or phone. The input/output model was applied to study the processes in ING Direct. The core process of ING Direct involves the use of technology to give services to its customers. The major inputs to produce the services offered would include; cash, hardware, software, information (Experian credit score), employees etc.

Analysis of input/output model

ING Direct has designed its process in such a way that the delivery product is fully automated. This automation helps it to save cost and use its resources most effectively. One of the major benefits with the current process is that even if the customers increase by two-fold or three-fold, bank can provide its services without the need of high infrastructural expenditure. If you look at the centre of the figure () you can see the main processes that takes place. For example, account updates, transfer between accounts, and verification of customer details. All the inputs and the process are combined to produce services like saving accounts, mortgages, and investment products.

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Problems of current operations Customers have limited access to money ING Direct does not have any ATMs or debit cards. It also does not provide any place to withdraw money in person. The only way customer has access to his money is by transferring the money to his traditional account and then withdraws from there. This process takes at least 3 days to be transferred. Many customers will not prefer the delaying service and may not open an account. Call Centre services ING Direct tries to minimise the number of call to its centre. They even close some customers account because they tend to call the centre very often. Sudden increase in number of customers can not be handled by INGs call centres. For example, when they took over Net bank in America, they could not stand the number of calls that come in. But they are losing the opportunity to build customer relationship. Unsustainable Competitive Advantages The main feature of INGs process is its cost efficient. The problem with this strategy is that it can be copied by any of the competitors. It‟s only a matter of time that competition catches up ING. It will lose its unique selling position of higher savings rate and no service charges. It is limited to computer literates. It does not well with the old age group. Website At the moment it does not come up with ING Directs savings account at the optimum level when searched using the search engine e.g. Google. ING Directs customers are internet users.

Potential solutions for operations According to Porter (1985) value chain analysis is an analytical tool which can be used to apply to competitive strategies. We use value chain analysis to bring out the possible solutions from the current operations. We can use value chain analysis to access the cost effectiveness of each component mentioned in the value chain and also understand the competitors cost structure. ING Direct has got an excellent website which is highly interactive. The bank has an excellent security features, no major issues of security failure have ever been reported. ING Direct should add features like confirmation of transaction, to be sent via email or SMS to the customer. This feature will save the trouble of customer logging in to check their balance. An instant chat facility should be also added to facilitate customers clear their doubts. Call centres facilities should be upgraded by making provisions for by standby staff. If the call volume goes up the staff then should be helping out. There should be coordination between the marketing department and call centre operations. Any significant promotions should be communicated in advance to the call centre department, this will help in planning. ING Direct operates in nine countries; there are plenty of emerging markets around the world. ING Direct needs to geographically expand to increase its profit.

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Possible Solutions 1) Continuation of the present model and employ TQM ING Direct can continue with the existing model. It is a proven model and is very cost effective. We can from the financial results that the return on the capital is strong at 14.3. This means that the business in giving goo rate of returns. The dip in profits can be a temporary thing due to the market conditions & the high operation expenses incurred by the company at some areas. So it would be foolish to meddle with a highly successful modal By employing TQM, company can set performance indicators and then work towards becoming more efficient The main disadvantage of the present model is that it is being successfully copied by rivals who offer the advantage of traditional banking as well. From the BCG Model, we can see that the star product the savings account has moved in to cash cow region and may become a dog. To counter this, the company may have to launch new products.

2) Employ BPR and start afresh The youthfulness and the rebel nature of the company have been lost as it has become more and more acceptable in the system. But, ING Direct was at its most successful when it did things which were different & innovative E.g.: Promotion which gave free tank of gas made headlines & forced customers to sit up and notice. According to the CEO there is no sector or market which does not lend itself to reengineering that is what ING Direct it bests. This would be good time to reposition itself and to adjust to the change market condition 3) Tying up with Western Union ING DIRECT main drawback with the current business model is it does not allow customers to withdraw money and deposit without the help of traditional banks. Arrangements can be made with western union where the customer gives instructions online or via mobile to transfer his money to any of Western Union locations and withdraw it from there.

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Recommendations ING Direct should tie up with western union The challenge before ING DIRECT is that it has created a cost effective process and product that has mass appeal. The big question is to distribute and provide access to its services without incurring cost. Associating with Western Union provides excellent opportunity to achieve this aims and possible revenue generation source. Western Union is a trusted brand in money transfer and has more than 150 years of tradition. All its agents are verified and vetted before they are given Western Union Agency. This would provide customer with an easy deposit point while deposits can be free of charge, withdrawal could be charged. This gives an opportunity for western union and the bank to generate revenue. The customer would feel that Western Union is charging for its service and keep the image of bank intact Another major advantage is the reach of Western Union it is operating in more than 200 countries associating with it also help in building the brand image of ING DIRECT, as it one of the most trusted brands around the world. The POP space which western union has could be shared and would be excellent way of making the ING DIRECT popular. Customer who is going to travel abroad may use the service to withdraw money from international locations. Traditional banks charges at least 1% to 3% of the money withdrawn using the debit card .We would be competitive as we can charge a flat fee for the transfer equal to what Western Union charges for its services. Tying up with Western Union will not incur us the cost. We can provide excellent deposit rates to customers which is a sure way of generating business. Since deposit and withdrawal can also be done using Western Union branches customers who are not computer literate with the help of friends or relatives can open an account and then operate it. It will attract customer who leave the money in fixed deposit for a long period of time, because of the high interest rate. Occasional withdrawal is possible using Western Union Mobile Technology to be developed: The next revolution in banking will use the full facilities of mobile information technology. Just like ING Direct revolutionised the banking sector by only using a website, the next big thing will be use of mobile (for e.g. mobile phone) system for baking on the go. The stage is set for ING Direct to reengineer and harness the power of mobile information systems. From giving the facility for customers to transfer funds between accounts it can also be developed to view account statements.

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Online Chat Facility: Customers who have any doubts or issues with their account while they are logged in can use this facility to clear their doubts. This will lead to speedy dispersal of issues and also an employee can at least chat with two customers at a time Since the customer is logged in there won‟t be need for verification of customer details which is needed over the phone. A query can also be left on the site for further clarification

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Reference • • • • •

Laudon, J. & Laudon, K. (2007), Management Information Systems: Managing the Digital Firm, New Jersey: Prentice Hall. Naylor, J., 2002. Introduction to Operations Management. 2nd ed. UK: Prentice Hall. Porter, M. E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, New York: Free Press Ingdirect.com Thisismoney.com

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Appendix-1 Ratios & Key Figures of ING Direct 2004-2007 Description Total Income Operating Expenses Additions to Loan Loss Provisions Underlying Profit Before Tax Total Profit Before Tax Risk Adjusted ROC Number of Clients Total Assets Economic Capital Depreciation and Amortisation Impairments Net Profit Growth Cost/Income Ratio Return on Economic Capital Changes in Operating Expenses Changes in Income

2004 1,709 1,185 89 435 435 11.3

2005

2006

2,119 1,396 106 617 617 14.9 14,706 232,773 3,100 63

2,233 1,482 57 694 691 11.8 17,511 253,160 3,430 74

29.50 0.66 14.9

10.71 0.66 11.8 5.80 5.11

19.35

2007 2,196 1,598 68 530 530 14.3 20,262 262,560 2,831 87 14 -30.38 0.73 14.3 7.26 -1.68

Change -1.68 7.8 -23.6 -23.3 15.7 3.7

1) Net Profit Ratio Net Profit Ratio

2007 24.13

2006 30.94

2005 29.12

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑇𝑜𝑡𝑒𝑙 𝐼𝑛𝑐𝑜𝑚𝑒 The net profit margin ratio tells us the amount of net profit per £1 of turnover a business has earned. That is, after taking account of the cost of sales, the administration costs, the selling and distributions costs and all other costs.

2)

Net profit growth Net profit growth

2007 -30.38

2006 10.71

2005 29.50

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑒𝑎𝑟 − 𝐿𝑎𝑠𝑡 𝑌𝑒𝑎𝑟 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑒𝑎𝑟 This ratio reflects the movements in percentage in the net profit over a year's period. Page 15 of 27

3) Cost/Income Ratio 2007 Cost/Income Ratio

.73

2006 .66

2005 .66

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑 This ratio shows the efficiency of the operations, lower ratio reflecting a higher efficiency 4) Return on Economic capital Return on Economic capital

2007 14.3

2006 11.8

2005 14.9

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑 The ratio shows what the return company is generating on the shareholders funds. A higher ratio is needed to attract new funds and to maintain the existing ones. 5) % Change in Operating Expenses % Change in Operating Expenses

2007 7.26

2006 5.80

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑒𝑎𝑟 − 𝐿𝑎𝑠𝑡 𝑌𝑒𝑎𝑟 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑒𝑎𝑟 This ratio reflects the movements in percentage in the operating expenses over a year's period. 6) % Change in Income % Change in Income

2007 -1.68

2006 5.11

2005 19.35

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑒𝑎𝑟 − 𝐿𝑎𝑠𝑡 𝑌𝑒𝑎𝑟 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑒𝑎𝑟 This ratio reflects the movements in percentage in the total income over a year's period.

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Appendix -2 Comparison of Different Savings Accounts U.S.A.

Bank or Account Name

Interest Rate (APY)

Easiness to Maintain the Account Required No. Of Links to Required Monthly Opening External Minimum Balance Balance Accounts

FNBO Direct Savings

3.25%

$1

Non required

3

E-Trade Complete Savings

3.30%

$1

Non required

Unlimited

HSBC Direct Savings

3.00%

$1

Non required

Unlimited

Dollar Savings Direct

1.00% - 4.00%1 N.A

Non required

N.A

2.50%

$1

Non required

N.A

2.27%- 3.00%2

$1

Non required

N.A

2.75%

$1

Non required

3

Washington Mutual Special Savings Account Citibank Ultimate Savings Account ING Direct

Source: mymoneyblog.com 1-

4.00% with $1,000 balance, otherwise 1.00%. 2Earn 3.00% if two bill payments per month from a linked Citi checking account is maintained, otherwise 2.27%.

U.K.

Bank or Bank Account

ICICI Bank Hisave Savings Account Principality BS E-Saver First Direct Everyday E-Saver Alliance & Leicester Online Tracker Abbey Esaver Direct Bradford & Bingley Esavings 6 Sainsbury’s Finance Internet Saver ING Direct

Interest Rate (AER) 5.50% 5.35% 2.75% 4.75% 2.25 % -6%1 4.60% 4.00% 2.75%

Easiness to Maintain the Account Required Required Monthly Opening Minimum Balance Balance £1 Non required £1 Non required £1 £1 £1 Non required £1 Non required £1,000 £1,000 £1 Non required £1 Non required Source: moneysupermarket.com

1-

6.00% if no withdrawals are made in a year, 5.69% assuming there is just one withdrawal an year, otherwise 2.25%.

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Appendix -3 Share Prices of ING Group & Competitors in FY 2007 Same Sector – Compared with E-Trade

Traditional Competitors

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ING Group

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Appendix -4 Analysis of ING Direct using Porter's Five Forces A. Bargaining Power of Suppliers ING Direct‟s Suppliers are its staff who supplies labour, its depositors & parent company that provides it with its raw material to do the business i.e. the Capital, external agencies like credit check agencies & software providers that provide it with services. We can see that the bargaining power of depositors, provider of the companies‟ capital is very high. But other suppliers like its staff and service providers have little bargaining power as they can be easily replaced. This means: 1) It cannot bargain with its investors and will have to keep its interest rates high. 2) It can negotiate with its staff and service providers and get favourable deals thereby keeping the costs down.

B. Bargaining Power of Buyers ING Direct has millions of investors. Almost all of these investors are individuals who think and act independently. These factors bring down the bargaining power of customers. But then again, the market is saturated with countless banks that fight for these investors. It is easy for investors to switch to other banks with little or no lost of productivity. Bargaining power of buyers will also depend on how expensive his choices will be. E.g.: Customers who same small amounts will not be bothered by small interest cuts. We can also see that the bank‟s customers are not loyal. They switch over to different competitor as soon as the bank lowered its interest rate. This means: 1) Bargaining power of the investors is high due to the choices available. 2) Customers with small savings have only little bargaining power. 3) There is no or little brand loyalty which prohibits the customers from switching.

C. Threat of New Entrants It is very easy to enter ING Direct‟s Market segment; the online savings banking. The barriers like technology, cash, license &infrastructure are easy to overcome. Any traditional bank can start up an online saver bank with little or no effort. This will offer the customer an attractive proposition i.e. benefits of online bank coupled with safety associated with a traditional bank. This is evident as Citibank and HSBC where among those offering no fee, no-minimumbalance web-only accounts with well-above-average interest rate. This means: 1) Threat of new entrants is very much real making the business very competitive 2) As ING Direct‟s customers are not loyal there is a danger that new entrants with better deals will have no difficulty in gaining customers.

D. Threat of Substitutes The market is flooded with similar products which directly compete with ING Direct‟s products. We should also consider indirect substitutes like government bonds and traditional banks which is not the same product, Page 20 of 27

but give similar benefits. This means that ING Direct should have a cutting edge which keeps the customers. Factors like brand loyalty, advertising and penalties for switching will prevent the customer from folding to a substitute. This means: 1) ING Direct should strive to maintain the unique element to its product which is the above average customer service. 2) ING Direct charges no penalties for switching to a competitor making it tempting for an investor to jump ship to a different bank.

E. Rivalry Among Competitors Rivalry among competitors is intense in banking sector. In a sector where success formulas are fast copied, ING Direct should continually innovate to stay one step ahead of rivals. This also means that profit margins are kept at minimum. Being the market leader in all the countries which it operates will help ING Direct in keeping the competitors at bay. This means: 1) ING Direct tries to keep competition to a minimum by focusing on a unique sector of the market. More the products, more the competition. 2) ING Direct should try foreign markets where there is less competition in its unique sector. 3) ING Direct should try to differentiate its product from the rivals by focusing on its strong points.

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Appendix -5 SWOT Analysis of ING Direct A. Strengths ING Direct has the strong backing of its parent company, the global giant ING. The fact that ING Direct came early into this segment means it got time to build up a strong franchise. This also gives ING Direct a clear competitive advantage in the sense that it knows its target customers better than any competitor. It should also be noted that despite getting some funding from their parent company, their products are their main source of income. This gives them the necessary freedom to take strategic decisions without consulting the parent company. A unique & proven business model is one of the strengths of ING Direct. The use of cafes to market their product gives them a cool factor and helps the customers to differentiate them from their competitors. The „clear and simple‟ advertisement strategy is a big asset as customers associate these as characteristics of the bank. The products itself, a simple no strings attached savings accounts and „easy to apply‟ mortgages are big strengths of the bank. Use of well trained staff in their call centres & cafes make sure that the customer satisfaction levels are above average. The cost effectiveness of the bank, due to its use of innovate technology, is also the strength of the company. The cost per customer is very low. Also, ING Direct has a clear picture of its target customers „young to middle age, techno-savvy enterprising types‟ which helps in marketing its products.

B. Weakness. The biggest weakness of ING Direct is also its biggest advantage, its online business model. Most customers prefer the personnel touch offered by the traditional banks while ING Direct can only offer its website & telephone banking to its customers. Even the cafes are just a means of introducing the brand to customers. ING Direct „„sell products & commodities not solutions‟‟. This is a radical change to the traditional banking system where emphasis is on solutions and customers might not relate to this new system. The product portfolio of ING Direct is small when compared to other banks. This is a weakness as the bank can never fulfil the complete needs of a customer. Again, from the case study we understand that the cross selling rate within ING Direct is „rather low‟.

C. Opportunities Internet banking is a high-growth segment and ING Direct is the market leader of the sector. The fact that that it operates in only nine countries sheds light to the vast opportunities the bank has in relation to expansion. As the world is moving towards a „net-enabled community‟, ING Direct has got a proven business model with which in can move in to new markets. ING Direct has a choice of widening its product portfolio in an attempt to target new customer pools. If it combines it‟s „no nonsense policy‟ with traditional banking products like current accounts, there is a sure winner on the cards. The recent banking crisis has left some banks wounded and ING Direct, who is in a seemingly better position, can acquire new customers. E.g.: ING Direct has acquired Kaupthing Edge and Heritable Bank customers recently.

D. Threats The treat of new entrants in to its segment is very real. As there are no substantial entry barriers, the market will only get more crowded. Again, the threat of substitutes is also substantial. E.g.: More and more traditional banks are offering competitive rates. The bargaining power of the customers is very high and Page 22 of 27

the bank has to remain very competitive in order to survive. E.g.: Savers moved almost three billion pounds from ING Direct accounts to rival banks when the bank reduced interest rates in 2007. It should be noted that the company faces a question of autonomy from its parent organization, the ING Group. The group might decide that it needs tighter control of the affairs in this rough climate. The implications of this move cannot be calculated. The turbulent climate is also a threat as customers might shy away from saving in online banks as some of the „direct‟ banks have recently collapsed. Internet security is another threat which will adversely affect ING Direct‟s ambitions.

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Appendix -6 PEST Analysis of ING Direct A. Political Factors ING Direct operates in nine countries which have completely different taxation laws and accounting systems. The further expansion will depend on how well the company can adapt to the local laws. E.g.: ING Direct‟s ability to penetrate the Middle East markets will depends on its ability to adhere to the Shariah law. The employment laws also differ according to countries. E.g.: It is much harder to fire permanent employees in U.K. than in U.S. Again, the industry is regulated by governmental agencies in different countries which will force ING Direct to make changes to its products. E.g.: FSA in U.K makes sure that ING Direct adherers to its guide lines while operating in its borders. The marketing efforts of the company will also be affected by the governmental agencies like „British Advertising Standards Authority‟. The stability & economic policies of the local governments will also affect the bank policies. E.g.: Recently, UK government put pressure on all banks to pass the rate cut to its customers.

B. Economical Factors The world economy is facing a banking crisis which has affected customer confidence in a big way. Among the bankrupted where some internet savings banks which has raised the question whether the business model is a reliable one or not. This means that ING Direct is facing an uphill struggle to gain new customers. But, it is also an opportunity to takeover ailing competitors, and achieves inorganic growth. The economic growth in the countries it operates is at best slow and at worst, bordering on recession. E.g.: U.K. economy is in serious danger of going in to recession. This normally means that the public have to break in to their savings account which is a bad proposition for ING Direct. The interest rates have been brought down by most central banks. This means that the operating profits of ING Direct will shrink, forcing the bank to further bring down its costs. We can also see that the exchange rates are highly volatile and so is the inflation rate in different countries. We should also consider the productivity of employees across countries. We should also take in to account that unemployment is rising in countries like U.K.

C. Social Factors The biggest social factor affecting ING Direct is the customer perception that a bank should have a physical presence in the high street. Even though effective marketing & advances in technology have made internet banks acceptable, major sections of customers are still vary of these banks. The recent failures of Icesave have just cemented their opinions. The fact that ING Direct has a „rebel‟ status in the banking sector will appeal to the young customers. This will also alienate older customers who like to follow age old practices. ING Direct should also look in country culture like „emphasis on safety‟, „attitude to foreign products‟ and language when it thinks of expansion.

D. Technological Factors ING Direct depends on technology for its operations around the world. The main channel of distribution is a website. Supporting this website is state of the art call centres which facilitate some human touch in the operations. This means that the company can operate only in techno-savvy communities. ING Direct Page 24 of 27

tries to educate the masses about its website through heavy marketing. Also, the website is kept very user-friendly so that the learning curve of the new customers is kept to a minimum. The staffs at the call centres is given extra training to handle the customers who are less fluent at using the technology based banking system the company offer. When expanding, the company should look in to the factors like penetration of internet facilities, familiarity with information technology & the learning culture of the people.

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Appendix -7 Seven Ps of ING Direct Marketing Mix 1. Products ING Direct has four core products which are simple & easy to use  Saving accounts  Mortgages  Home insurance  Broker dealing

2. Price    

No monthly charges No withdraw fee No minimum balance Competitive mortgage rates and savings account rates

3. Promotion       

Prominent display of the insignia and corporate colour orange Simple TV advertisements Association with prime time sports like Formula 1 Competitive Mortgage Rates and Savings Account Rates Effective use of ING Direct cafes Innovative localised marketing campaigns. Use of advertisements in popular websites like Facebook.com

4. Place    

Simple user-friendly web site with 24/7 access Telephone banking ING Direct cafes Presence in nine countries

5. Physical Evidence      

Placement of ING in the name of the bank. Association with prime time sports like Formula 1 Usage of advertisements ING Direct cafes & call centres Letters & statements send by the company ATM cards where they are available.

6. Process      Page 26 of 27

Call centre management Website management Cafe management Mortgages & Accounts application processing Collaboration with outside agencies like credit checking agencies



Automated money management i.e. moving money to and from various accounts

7. People   

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Management team lead by the visionary CEO Arkadi Kuhlmann Central IT group Well trained call centre & cafe staff