You cannot write checks. You cannot visit a branch. You should not call and ask too many nitpicky questions. In fact, if you want to be a customer of ING Direct, dont expect any hand-holding at all.
You have a relationship with a spouse, not with a bank, said Arkadi Kuhlmann, chairman and chief executive of ING Direct U.S., the seven-month-old direct banking operation run by the Amsterdam banking giant ING Group.
The U.S. subsidiary of ING Direct, run out of a converted warehouse in Wilmington, Del., is one of several no-frills banks that ING is setting up around the world. It says the U.S. operation is the most successful yet, having pulled in $1.3 billion of deposits and 100,000 customers.
Savings accounts with high interest rates and loans with low interest rates are the main attractions, since ING Direct does not offer checking accounts they have been deemed too expensive, and thus out of line with the companys low-cost, low-maintenance business model.
One of ING Directs major objectives is to find the right type of customer for its brand of banking, rather than provide a full set of services. That has often meant closing down accounts of people ING Direct decided were not a good fit.
I dont want a lot of customer questions I want the right questions, Mr. Kuhlmann said. There are people who get on the phone and want to carry on the same kind of conversation that they would in a branch. Were saying, No, you are not the right kind of person for a direct bank. You belong in a branch.
At INGDirect, there are no branches where customers may conduct transactions. Instead, the company is opening cafes meant as hangouts for its customers, where the people who make the cappuccino will answer a few basic questions (but wont take deposits).
Mr. Kuhlmann is well versed in recognizing the type of customer who thrives without branches. Before overseeing the launch of ING Directs U.S. outfit he headed INGs highly successful direct banking initiative in Canada, the first attempt at bringing INGs style of direct banking to the masses. Before that he was president of North American Trust.
A 53-year-old professor of investment banking, Mr. Kuhlmann likes to paint, write poetry, and ride motorcycles. Appropriately, he leads a company whose approach to banking is not exactly conventional.
ING Direct of Canada, which started doing business in 1997, quickly defied predictions that the interest rate it was offering more than 5% on deposits was too high. It turned a profit in 38 months, almost two years ahead of schedule, and has amassed $3 billion of deposits and 300,000 customers.
Hans Verkoren, global head of ING Direct in Amsterdam, said he expects the U.S. outfit to be profitable by the end of its third year. His company also has operations in Spain, France, Australia, and Italy.
Mr. Verkoren attributed the healthy U.S. growth to a progressive local market. In other cultures, people might need more reassurance, he said. I think Americans are more spontaneous and more entrepreneurial in acting fast if they see a good opportunity.
ING faces intense competition from a big field of Internet players, including Juniper Bank, which is run by Bank One Corp./First U.S.A. veterans and located right down the street from INGs Wilmington headquarters. But Mr. Kuhlmann has his scope set squarely on the big cats. Were trying to compete against the traditional banks, he said. We think we have a better value proposition for those customers.
That proposition will be delivered alongside tea and latte at Internet cafe/merchandise stores. They have opened in Toronto, Vancouver, and Manhattan, and others are to follow in Philadelphia and Wilmington, in a former train station adjacent to INGs headquarters.
Cafe customers can bank online or by phone and buy mountain bikes, shirts, flannel pajamas and other merchandise in INGs signature color, bright orange. Writing a check, however, is verboten. The banks charter prohibits the cafes to function as branches, so employees cannot accept payments or process banking transactions.
ING Direct is promoting its cafes more as gathering places for people who feel an affinity with the company, Mr. Kuhlmann said. If someone says, Why would I go there if its not a branch? thats old paradigm, old thinking, he said. This is a brand. Whats Niketown about? A brand. You can go to the cafe and just sound off and bitch about banking with other people.
The cafes have attracted evangelists who are unhappy with traditional banks and wear their ING gear like a flag, Mr. Kuhlmann said. It just drives other bankers crazy, he said.
Richard Bell, director of e-banking at TowerGroup, laughs at the branch-as-hot-spot notion.
Thats a great one, he said. I have some real bad news for folks that want to be the Hard Rock Cafe of anything that offers financial services: People dont hang out at the bank. I know a lot of folks who are bank geeks, and even they dont hang out at the bank. Theres a certain cachet to it, and its going to have some amount of uptake, but at the end of the day, whats the real potential? While financial services are an important part of peoples lives, mostly its something that people ignore.
ING Directs marketing/promotion mix also includes television ads in the mid-Atlantic region, newspaper inserts, coffee giveaways at train stations, and showing up at street fairs and Little League games.
The $500 billion-asset parent company, which has 100,000 employees worldwide, is spending $100 million to $200 million a year for five years on the ING Directs U.S. launch.
The U.S. bank expects to mitigate its marketing expenditures by keeping operating costs down. Its 80-employee call center will be used mainly for telemarketing and maintain the same staffing level regardless of how much it grows, Mr. Verkoren said. The company will encourage customers to manage their accounts online or through the companys interactive phone service.
For all its lack of convention, ING Direct is fiscally conservative, investing in commercial mortgages and treasury bills but steering clear of riskier areas like junk bonds and subprime lending. Its spread is below the industry average, and it keeps a tight rein on costs, Mr. Kuhlmann said.
Its high-volume, low-margin, he said. Doing things cheaply is really difficult to do, but its something we have to do to make profits.
ING Directs formula for growth is simple, he says: If customers are happy with the high-rate savings account, the bank reasons, it is entitled to cross-sell them products such as certificates of deposit, low-interest loans, and mortgages. If the market improves, the bank will probably add mutual funds and life insurance this year.
Mr. Kuhlmann contends that savings accounts are an easy sell.
There isnt a child, a grandfather, a single mother that couldnt use a high-value savings account, he said. Everybodys promoting consumer debt or theyre promoting consumer investment but theres a real missed opportunity out there to help people with their savings. Everybody has said that the savings account is dead. ING Direct is saying its actually being resuscitated.
ING Direct also has set a July kickoff for a childrens Web site that looks like a video game with three-dimensional graphics and characters but is meant to instruct. As a society were not teaching kids about savings, Mr. Kuhlmann said. Were teaching them about consumption.
In the absence of an automated teller machine network, ING Direct lets customers make withdrawals by transferring funds to a checking account at another bank linked to their ING account, a process that usually takes two business days. Deposits are made by transferring funds online or by phone, through direct deposit, or by mailing a check.
Visitors to the U.S. headquarters see exposed brick walls, wood beams, and a proliferation of mouse pads, wooden tulips, and orange accents. One of Mr. Kuhlmanns motorcycles one that he does not ride is displayed on a second-floor landing.
But the relaxed atmosphere belies a meticulous attention to detail, says Octavio Marenzi, a managing director at Celent Communications. ING Direct, he said, takes cost accounting almost to the extreme, to the point where they know every penny thats being spent.
Mr. Kuhlmann is so hands-on that he occasionally works in the banks call center to keep up on day-to-day operations, Mr. Marenzi said. Thats extremely unusual. Ive never heard of any CEO doing that before. Hes very energetic. Hes not afraid of doing things that go against the grain.
As an example, ING Direct offers an opt-in policy with things like direct mailings they reach only those customers who agree to receive them. Most banks require their customers to opt out of such solicitations.
Mr. Bell said ING Directs rates, though not as good as those of some other Internet banks, are competitive, and that its business model as a whole is sound. There are some customers who will buy on the basis of price and dont really care about service, and folks like ING can attack that market, he said.
Sam M. Ditzion, a senior analyst in the financial services group at Dove Consulting, sees ING as a niche player with a unique offering but says it may struggle at cross-selling if it does not sweeten the add-on products rates.
These are the customers who are used to getting the too-good-to-be-true offers, he said. These arent necessarily the customers who they can get a lot out of.
Mr. Kuhlmann said customers are looking for value, service, and products that are just right for them, nothing more complicated than that. This is nothing new, he said. This is as old as Methuselah. Were not sending people to the moon. Were not engineering babies in test tubes. Its just money.