Lean, Mean, Banking Machine - ING Direct - Redefining Direct Banking

Between 2001 and 2002, ING Direct increased its customer base from 2.6 million to roughly 4 million. What’s more, by 2002 the direct banking service had reached EUR 65 billion in total funds entrusted, a figure it expected to reach in 2008. How did the company manage such extraordinary success in such a short period of time, and in a mature market like banking? In this new case Professor Soumitra Dutta and Sameer Oundhakar explain the formula and ask whether the inherent simplicity of the business, which has made ING Direct so successful, can be maintained as it expands into new markets.

by Soumitra Dutta
Last Updated: 23 Jul 2013

It’s the 80-20 rule. In healthcare, statistics show that roughly 20% of the population consumes 80% of the resources. In retail banking, just 10 to 20 products generate 80% of the total profits. With this understanding as a backdrop, ING Direct set out to create a simple, streamlined bank. While typical retail banks offer more than 100 mutual funds, ING Direct offers just 10 to 15. While other retail banks invest money and resources in branches, ING Direct focuses on the technology that allows its customers to interact with the bank through electronic channels, like the telephone, Internet, or ATM machines. As the “Ikea” of banking, ING Direct has carved out a powerful niche for itself.

In this new case, Soumitra Dutta, The Roland Berger Professor of Business and Technology and Sameer Oundhakar, INSEAD MBA ’02, review the company’s strategy and ask whether it can sustain itself through such significant growth period.

ING Direct’s roots date to 1990, when its parent company, the ING Group, was formed through a merger between Nationale-Nederlanden, an insurance company, and NMB Postbank Groep, a banking group operating in the Netherlands and one of the pioneers of branchless banking. After expanding its operations through both organic growth and several large international acquisitions, the ING Group created and spun off as its own legal entity ING Direct.

From the start ING Direct drew heavily on the direct banking expertise of Postbank and many of its senior managers came from there. As a direct bank for retail customers, ING Direct catered primarily to individuals, had no branches and interacted with its customers mainly through electronic means. These cost savings were passed along to customers in the form of better rates. Its market strategy involved three strategic steps:

  1. Enter sufficiently large markets with a very competitive savings product and to reach a sustainable size as soon as possible.

  2. Build brand awareness and credibility (through aggressive advertising) in order to attract sufficient customer deposits to build scale as soon as possible.

  3. Use only tried and tested IT systems when setting up in a new country.
The strategy worked, allowing ING Direct to grow faster than originally expected. Yet, as Dutta and Oundhakar point out, its growth could become a problem and they ask readers to weigh the potential costs of sustained growth. Can the company continue to develop new products and increase the level of cross-selling to its existing customers in order to maintain its aggressive growth? How will the emergence of new competition like supermarket banks challenge its position? Can the entrepreneurial spirit of ING Direct be maintained as it grows into a mature organisation?

This case is best used in a course on entrepreneurship and change management.

INSEAD 2002

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