It seems like a flashback to the dot-com boom: A fledgling online bank quadrupled its assets last year, to $3.6 billion, and its chief executive officer says assets have more than doubled again this year, topping $8 billion.
But this is no replay of the Internet bubble, nor is ING Direct a typical fledgling.
"We've just completed our second month of profitability, two years ahead of plan. That's not bad for a start-up," Arkadi Kuhlmann, the CEO, said in an interview last week.
He rejects the characterization of the Wilmington, Del., federal savings bank as an Internet bank, even though the Web is its primary customer channel. "We classify ourselves as the only direct consumer bank" in the United States, he said. "We're actually a pure S&L," focusing on residential mortgages and savings accounts. "You can't get any more old-fashioned than that."
ING Direct, part of Amsterdam-based ING Group, does not offer checking accounts, though it enables customers to link their savings accounts to accounts at other institutions for ease in transferring funds. Some observers question whether it will need to offer payment services down the road.
Mr. Kuhlmann said his new customers are coming from the big money-center banks, not from community banks or regionals. (Analysts point out that the institution's only walk-in locations are Internet cafes in New York and Philadelphia, and much of its marketing has targeted the Northeast.)
The general approach is similar to the one Mr. Kuhlmann pursued in establishing ING's first online bank, in Canada, a venture directed by its globe-straddling parent company. The Canadian bank achieved profitability in less than four years, he said, and then he moved to Wilmington to start up the U.S. bank. ING also operates direct banks in Spain, France, Italy, and Australia.
Though its strategy is "branchless," ING Direct operates Internet cafes in New York and Philadelphia and plans to open one in Los Angeles this year. Cafe staff members can discuss accounts and loans but cannot accept deposits.
In its quest to cut costs, ING Direct takes steps that others would consider radical. "If you don't have any activity in a month, we're not sending you a statement," Mr. Kuhlmann said. Savings account customers who insist on a paper statement "should go back to Chase," he said. "They have the $1.84 to spend on you. I don't."
Lately, Mr. Kuhlmann has been pounding the drumbeat that the United States needs to develop more of a savings culture.
According to a press release issued at a retirement savings conference that ING Direct co-sponsored in New York this month, the savings theme "further underscores ING Direct's mission to offer simple financial products with no minimums, no fees and the highest savings interest rate in the nation, to not only encourage savings, but enable any consumer on Main Street to plan for a sound financial future." The RetireMint conference was organized by the American Savings Education Council.
In the interview, Mr. Kuhlmann also emphasized the role of savings for his customers, and criticized the modern emphasis on consumption at the expense of savings.
Young Money announced Monday that ING Direct would be the exclusive sponsor for its summer and fall issues. The magazine, published by the nonprofit InCharge Institute of America Inc. in Orlando, targets college students and other young adults in the 18-24 age group. Todd Romer, the publication's director of business development, said in announcing the sponsorship, "We share the same passion for encouraging young adults to be financially responsible and the commitment to helping them prepare for a sound financial future."
Mr. Kuhlmann said ING Direct is pressing ahead with plans to start a Web site promoting savings to an even younger group - kids who are not old enough to have their own checking account but who might have an income from an allowance or an after-school job. The Orange Junior account, an extension of the brand ING Direct has been pushing, was originally scheduled to be introduced in 2001. It remains under development, and Mr. Kuhlmann said he hopes to introduce it this summer.
Analysts offer good words for ING Direct, but there is still a lingering wait-and-see attitude.
"They've really done a great job so far," said Ian Rubin, the director of online finance research at the Framingham, Mass., consulting firm IDC. He credited, first, the company's image-building campaign on television and the Internet, promoting "ING - not an end but a beginning," and second, the bank's decision to pursue "the time-honored strategy of offering high rates," as he put it.
"It has a hip name. It's the 'orange account.' It has appeal to a certain age group and demographic," Mr. Rubin said. "People are attracted to the combination of rates and the hipness of the Orange brand."
At 3.3%, ING Direct's one-year certificate of deposit is paying the highest rate in the nation, according to Bankrate Inc. of North Palm Beach, Fla., which tracks consumer banking products at Bankrate.com. The national average, according to Bankrate's weekly survey of 50 large banks and 50 large thrifts, is 2.64%.
"They do have a unique way of approaching the market," said Jerry Silva, the senior analyst for retail banking at the Needham, Mass., research firm TowerGroup.
In a conventional bank, "first and foremost, it's about payments. That's the basis of all retail banks," Mr. Silva said. But Mr. Kuhlmann's strategy is different, he added: "The last thing he wants to do is to take your DDA, your demand deposit account."
With the collapse of the business model for Internet banks, it is no longer all that easy to round up enough competitors to form a peer group. "There aren't a lot of online-onlies left," Mr. Rubin said.
Wingspan Bank, the Web brand of Chicago's Bank One Corp., was folded back into the main bank last year, shut down as a separate marketing channel. USABancshares.com, facing regulatory restrictions following a $3 million loss involving a customer, retreated to its roots as a community institution in Philadelphia and is being sold to an investor. Juniper Bank, once ING Direct's crosstown rival in Wilmington, evolved into a holding company to handle credit card operations for its parent company, Synovus Financial Corp.'s Columbus Bank and Trust.
Mr. Rubin said perhaps the closest comparisons were to online survivors such as NetBank Inc. of Atlanta and First Internet Bank of Indiana. "I would give them a lot of credit because they are operating and they are profitable," he said. "ING has to prove itself to be in their class. They haven't done that yet."
Mr. Kuhlmann bridled at such comparisons.
NetBank, he asserted, "has reverse-engineered itself into a mortgage broker" with its most recent acquisition, of Resource Bancshares Mortgage Group Inc., a deal completed in April. He was equally dismissive of First Internet Bank of Indiana, saying, "We grow more in a month than they do in a year."
The question is whether such headlong growth is sustainable. Here, analysts split.
"I think it absolutely is," Mr. Silva said. "They do have a point. Households in the United States want to get back to the savings mode."
Mr. Rubin was more doubtful. "It is very difficult to maintain those higher-than-market rates forever, very difficult to compete on price forever," he said. "How you handle that growth and that necessary support as your customer base grows will be critical. It's easy to be a maverick in the beginning. At some point you have to transition from being a maverick to being a banker."
For his part, Mr. Kuhlmann said he doesn't know what the future will bring.
"We're like the Marines," he said. "We take the beachhead, and then we let the Army come in and build the roads. I think in a number of years that's what will happen here. It's the natural progression."
