ING Direct - a subsidiary of ING, one of Europe's largest financial services groups - has enjoyed resounding success with its "bare bones" internet- and telephone-based services. As Professor of Banking and Finance Jean Dermine details, the standard client package of a savings account, a mortgage and a selection of a mere six mutual funds has proven a palpable hit in Europe, Australia, and North America.
The online banking operation stands as a first-rate example of how a newcomer competing against a host of very well-established banks can gain the upper hand through creative applications of relatively new technology (i.e., internet services) and a basic, but widely appealing package of standard financial products. However, a complete evaluation of ING's strategy must involve a consideration of both return and risk.
The case starts with ING Direct's French operations, and how the firm made a bold and attention-grabbing strategic gambit in early 2004 by offering 5% on savings deposits, rising to 7% by year's end. This was seen as remarkable at a time when the standard rate was only 2%. More importantly, ING Direct was also offering more than the short-term market rate - a ploy that won it many new clients.