The Direct Banking Alternative

I have decided to take a look at ING Direct in the USA as a great example of a direct banking entity that has leveraged the electronic banking environment to gain a strong foothold in the US financial services industry.

ING Group is a global bank that started in the Netherlands and has grown tremendously since it’s inception in 1990 as a dominant player in the world direct banking industry. More specifically, ING Direct USA started in 2000 and is a subsidiary of the parent company ING Group.

What has distinguished ING Direct from the traditional banking model is their use of the online platform made by a strategic partner called e-Profile to deliver tremendous value to its customers. Although, it would seem that I am advocating against my own job due to the online platform, there is still a need for the physical branch banking model which has a footprint in the local community. Using both direct banks (a.k.a. online bank) and a credit union/traditional bank together adds value to the overall financial relationship. ING does not offer physical branches to reduce their overhead costs tremendously. Instead, they operate through major call center and back office functions scattered around the country and even in the homes of some employees to deliver the phone banking needs of its customers. The online banking platform is extremely functional and easy to use.

Some key critical success factors for ING Direct are:

- Strategic Relationships/Securing Key Suppliers

Partnering with e-Profile, they are able to receive great value because this supplier provides most of the solutions to the online needs of ING Direct. E-Profile is considered a vertical service provider accounting to an article I saw online: Click here to read

This strategic relationship helps ING control the cost of operations which then allow them to deliver value to their customers.

- Promotion/Marketing

With the additional income from the cost cutting initiatives, ING has a heavy focus in the area of promotion and marketing. The way that this is done is by advertising their brand effectively which is a simple Orange ball that provides guidance in the transition from the old way of banking to the familiar online banking systems and electronic processing we have now grown accustomed. In addition, there are internet cafes that promote the branch in major metropolitan areas like New York, San Francisco, Philadelphia, and Chicago to reach large segments of their target markets. This is also a departure from the old marketing models which would suggest that a larger physical presence is needed in order to be successful with branding. However, ING has decided that using the web as the primary tool through their affiliate programs and other web-based tools is more effective and also helps with cost. There is also a heavy investment in providing education tools for their entire product line and about personal finance in general. Finally, there is an online store that sells ING Direct merchandise which helps build brand loyalty and word of mouth promotion.

- Product Design/Price

As for product design and pricing, this is where ING Direct is able to realize their revenues. ING Direct has a high yield online savings account, a no-fee and no minimum balance checking account with automatic overdraft protection at a competitive interest rate, mortgage loans, certificates of deposit, business savings & checking, and investment/retirement accounts. At this time, they do not provide auto loans or credit cards due to their risk assesments. For this reason, the relationship to a local bank or credit union is still somewhat symbiotic due to reduced loan product offerings of ING Direct. As such, the overall cost of their customer relationships are minimal when compared to most banks and this is where folks like myself enjoy the financial relationship the most. Having minimal fees and a great product line in the banking industry is the preferred way to go in order to assets grow into the billions in less than 20 years and ING has been able to succeed.

One major drawback to ING Direct is successfully reaching customers who are uncomfortable with a totally online financial relationship and the ability to make deposits that are not in electronic form. ING Direct attempts to get around these obstacles by making it easy to link your regular bank account to their online savings or checking account. In this sense, you can make a deposit in your physical bank and then transfer the funds online to a normally higher interest bearing account online. The other issue that ING Direct faces is that of internet security, fraud monitoring, and viruses. It may not be a total disadvantage to only have an online banking platform in this case because regular banks have to allocate heavy investments into protecting electronic data as well. The difference is that ING Direct may have lower insurance costs because they do not have branches that could potentially get robbed. Instead, that cost is past along to vendors who have ATM machines and ING Direct has forged relationships with the Allpoint network to provide no fee ATM withdraw capabilities with a debit MasterCard for those who have their checking account.