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: Master of Business Administration

Module Name: International Business And Trade
Submission Date: 1st December 2008
Submitted to: Dr. Tim Harris
Page 1 of 27
 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................................................................. 9
Analysis of input/output model
Problems of current operations
Possible Solutions........................................................ 11
Recommendation........................................................ 12
Reference.................................................................... 14
Appendix..................................................................... 15
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

Page 2 of 27
 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

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 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
Savings
? Account

Mortgages
Dogs / 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

Savings
Mortgages
Account
/ insurance
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.

Page 8 of 27
 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.

Page 11 of 27
 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

Page 13 of 27
 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

Page 14 of 27
 Appendix-1
Ratios & Key Figures of ING Direct 2004-2007

Description 2004 2005 2006 2007 Change

Total Income 1,709 2,119 2,233 2,196 -1.68
Operating Expenses 1,185 1,396 1,482 1,598 7.8
Additions to Loan Loss Provisions 89 106 57 68
Underlying Profit Before Tax 435 617 694 530 -23.6
Total Profit Before Tax 435 617 691 530 -23.3
Risk Adjusted ROC 11.3 14.9 11.8 14.3
Number of Clients 14,706 17,511 20,262 15.7
Total Assets 232,773 253,160 262,560 3.7
Economic Capital 3,100 3,430 2,831
Depreciation and Amortisation 63 74 87
Impairments 14
Net Profit Growth 29.50 10.71 -30.38
Cost/Income Ratio 0.66 0.66 0.73
Return on Economic Capital 14.9 11.8 14.3
Changes in Operating Expenses 5.80 7.26
Changes in Income 19.35 5.11 -1.68

1) Net Profit Ratio

2007 2006 2005

Net Profit Ratio 24.13 30.94 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

2007 2006 2005

Net profit growth -30.38 10.71 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 2006 2005

Cost/Income Ratio .73 .66 .66

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑

This ratio shows the efficiency of the operations, lower ratio reflecting a higher efficiency

4) Return on Economic capital

2007 2006 2005

Return on Economic capital 14.3 11.8 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

2007 2006
% Change in Operating Expenses 7.26 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
2007 2006 2005
% Change in Income -1.68 5.11 19.35

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑒𝑎𝑟 − 𝐿𝑎𝑠𝑡 𝑌𝑒𝑎𝑟

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

Page 16 of 27
 Appendix -2
Comparison of Different Savings Accounts
U.S.A.

Easiness to Maintain the Account

Interest Rate Required No. Of Links to
Bank or Account Name Required Monthly
(APY) 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

Washington Mutual Special
2.50% $1 Non required N.A
Savings Account
Citibank Ultimate Savings
2.27%- 3.00%2 $1 Non required N.A
Account
ING Direct 2.75% $1 Non required 3
Source: mymoneyblog.com
1-
4.00% with $1,000 balance, otherwise 1.00%.
2-
Earn 3.00% if two bill payments per month from a linked Citi checking account is maintained, otherwise 2.27%.

U.K.

Easiness to Maintain the Account

Interest Rate Required
Bank or Bank Account Required
(AER) Monthly
Opening
Minimum
Balance
Balance
ICICI Bank Hisave Savings Account 5.50% £1 Non required
Principality BS E-Saver 5.35% £1 Non required
First Direct Everyday E-Saver 2.75% £1 £1
Alliance & Leicester Online Tracker 4.75% £1 Non required
Abbey Esaver Direct 2.25 % -6%1 £1 Non required
Bradford & Bingley Esavings 6 4.60% £1,000 £1,000
Sainsbury’s Finance Internet Saver 4.00% £1 Non required
ING Direct 2.75% £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%.

Page 17 of 27
 Appendix -3
Share Prices of ING Group & Competitors in FY 2007
Same Sector – Compared with E-Trade

Traditional Competitors

Page 18 of 27
ING Group

Page 19 of 27
 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-minimum-
balance 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
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 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
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 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
 Call centre management
 Website management
 Cafe management
 Mortgages & Accounts application processing
 Collaboration with outside agencies like credit checking agencies

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

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

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