After a tumultuous year for European banks, Ralph Hamers, chairman and CEO of ING Group in Amsterdam, is focused on growing his company's mobile and online user base.
ING has made splashy investments in its digital bank, recently announcing it will spend about $850 million over the next five years to accelerate customer growth. The company is a dominant player in the Netherlands and Belgium, and is growing rapidly across central and western Europe.
ING sold its U.S. banking unit to Capital One Financial four years ago, as part of a restructuring plan with the European Commission. The deal was one of largest transactions following the financial crisis. ING still operates a U.S. wholesale banking division.
The retail expansion plan does not include the U.S. market — though Hamers said he wouldn't rule out the possibility down the road. Instead, the company is looking at ways to build up its brand in markets such as Germany and Italy, where banks are under pressure to cut branches and deal with a host of problem loans.
The strategy hinges on persuading consumers to view ING as their primary bank, where they have both a deposit account and perhaps a loan, Hamers said.
"We're a challenger, we're a disruptor," said Hamers, who sported abacus cufflinks on a visit to American Banker's newsroom last week. "If the other banks are inward looking, great. Let them consolidate and do whatever they are intend to do."
Like many of its European competitors, ING — which operates in over 40 countries — has been forced to slash costs, as historically low rates have put pressure on profits. The company said this fall that it would slash 7,000 jobs in its core markets, in conjunction with its digital overhaul.
Here is a condensed and edited transcript of the conversation with Hamers.
Could you see ING entering the U.S. retail market again?
It's a question we get asked often. Could be. I would never say never. If you look at how we have continued to develop the business model that was so successful here with ING Direct, it's basically the business model that is causing us to be so successful in growth, in terms of numbers of customers online actually now moving to mobile.
One of the key things is that what you offer has to be simple and limited. So where other banks have to have a tendency to offer seven savings products and a mobile [product], nobody wants to make a choice between seven savings products. Nobody has time. You should have a maximum two that they can easily choose from. The real discipline of ING is not to go overboard on the offer.
Are your investments in fintech helping you expand into new markets?
Yeah, we will not be bound by our current footprint to work with these fintechs. So in Kabbage, we're an equity participant. Kabbage does [small and medium-size enterprise] lending in the U.S. So it exposes us to their success — or failure — in the U.S.
Yolt [an ING financial aggregator in the U.K.] is in a market in which we are not a consumer bank. If it works there, we may try it anywhere. So we don't feel limited and specifically from the fintech perspective, we don't feel a limit to stay within the current geographic parameter that we currently have.
We invested in WeLab, a Hong Kong-based consumer lending operation, which exposes us to the Chinese and Hong Kong market, in which we do not have a consumer bank either.
Is your mobile strategy put to a test in a rising rate environment, to see if people value customer experience over higher rates?
You probably remember us specifically in the U.S. that we would always use the benefit of being efficient, to give back some of the benefit by paying better rates. We were forced to test your thesis by the European Commission, because we had to go through restructuring, because we were bailed out by the Dutch government. We had to split between a bank and an insurance company — and at the same time, we were not allowed to be competitive in our rates in most of our European markets.
So we were never allowed to be in the top five of the best savings rates, nor the best mortgage rates, or whatsoever. So we were not allowed to differentiate on price beyond the normal competition. And the growth continued. That's because in the end, what we really focus on is the net promoter score — a [measure] of whether [consumers] think the pricing is fair, of whether they think the experience is better.
Do you think there needs to be a shift in how investors assess value for digital-only banks? Measuring the value of consumer relationships, rather than focusing on whether banks pay up for deposits?
This is my argument with my investors. You see that on average we grow 1.5 million new customers per year, and this continues. It's pretty predictable. Over the last five years, we have moved these online banks to become real banks — so doing consumer loans, doing mortgages, doing your paycheck and everything. Doing savings. So now our strategy is much more focus on generating primary relationships, as we call them.
Over the last three years, we gained 4 million customers. Probably that costs me money, but [investors are] valuing me on my PE on my current earnings. I've generated a lot of future earnings for you, and you're not giving me any credit for it. Any Silicon Valley player that has 4 million customers in 3 years, and has a loss of $50 million, is valued at $10 billion, because of future value.
There's recently been a loss of confidence in European banks. Is this the story you hope investors will focus on, in terms of looking at the future growth of digital users?
Well there are a couple of aspects of why European banks have been under pressure. The first being the underlying health of the economies. We're through that now. In general Europe is growing — it's nothing to be excited about, but it's growth.
The second factor is the capitalization of European banks. Are they sufficiently capitalized or not? And up until this moment, there has not been clarity about that … given the fact that one of the core elements of capital calculations is still to be decided with Basel.
And the third one [is] there are still countries that have weak banks, regardless of Basel. Italy for one. Germany, as well, where there's overcapacity in the market. So consolidation in banking in the industry in Europe still has to happen. In Spain they force it. In Holland it happened 20 years ago, and France as well. But in Germany — huge overcapacity in the banking market, very inefficient banks.
What does your embrace of open APIs mean for the future of ING as a brand? Where do you see value in terms of data?
More than anywhere else, you need to be open on the wholesale side, in my view, in order to benefit from the technology that is already available. Why do I say that? If we are going to create efficient payment streams across the globe, if we are going to improve the efficiency, safety and speed of our trade-banking system, which are still [conducted] through letters of credit on paper, through fax. If we are to use blockchain methodologies across different banks because we can't standardize trade finance on our own — it's impossible.
And then the question is: If you are in an ecosystem like that, how can you differentiate yourself against the others? And then your brand issue comes in.
What role do you think banks will play in the future when it comes to digital identity?
Already by regulation banks have to play that role. The question is whether there's a market for the role that the banks can offer. It's up to every bank to make that choice in my view. It's certainly a business model — there's a business model in that.
We're doing it in the Netherlands; we just did amongst the three or four largest banks. We developed a system that is now the way you can digitally identify yourself in ecommerce shops and everywhere. So you have basically one way to get into the virtual word.
But I think banks can play a future there. Certainly for clients to go around in a virtual economy, or a virtual world, and having to identify themselves over and over again, with new passports and new usernames, it's just not smooth. It's not a good experience.
What will ING's presence in the U.S. look like in five years?
What we want to do in the U.S. as part of the whole strategy is to continue to grow. We've been growing at 4-6% a year. We will stay sector-focused, because we think that the only we way we can add value here amongst the other banks is by bringing our knowledge on one side, and on the other side being the European bank for many of the American companies.
So where do we see ING in the U.S. in five years? It could be a 30% increase in the size, and in additional sectors — agriculture as I've indicated. We're looking at the pharmaceutical sector and healthcare sector as well, to see how that evolves with the abolishment of Obamacare or not.
Robert Barba contributed to this story.