Since setting up shop in Australia only 12 years ago, ING Direct has become the country’s fifth-largest bank for retail deposits and retail home loans, with market shares of just over 3.5%. In fiscal 2010, ING Direct Australia posted its highest ever profit. Will Cain and Douglas Blakey report.
Andrew Henderson, chief information officer (CIO) at ING Direct in Australia, is no stranger to difficult banking environments. His previous role at ING was leading an abortive project to build a retail bank in the politically and economically torn state of the Ukraine.
A year into the job in Australia, Henderson now has an altogether different, though no less challenging, to-do list. Regulatory reform on banking competition, funding constraints and declining domestic demand for loans is spurring an intense battle for market share, particularly in the online space where ING specialises.
The bank is defending its turf with an emphasis on simplicity, customer service and a range of internet and m-banking innovations.
“We offer fair value to a number of different customer segments,” he said.
“What we are offering is pretty transparent and customers opt into that. No hidden fees, we are pretty clear in what the customer can and can’t do in dealing with our channels and great customer service. It doesn’t matter whether you’re coming through the call centre or online. What you see is what you get.”
Home loans have become the area where the competition in Australian banking has been illustrated most clearly.
CBA and Westpac have reduced rates on mortgages and increased loan-to-value ratios to 95%. NAB has used its online UBank brand, launched in 2008, as the channel for the industry’s cheapest current mortgage offer.
But UBank’s most recent offer – an eye-catching 6.99% standard variable-rate home loan, about 0.8% lower than most of the major banks’ main mortgage products – comes with a catch.
While there are no fees involved to obtain and run the UBank loan, it is only on offer to home owners who want to refinance or switch from an existing mortgage; and it is only available to customers who require a maximum loan-to-value mortgage of 80%.
Despite the limitations of that mortgage product, UBank represents the most direct challenge to ING’s dominance in the online space as it ramps up it efforts to become a full-service web-based bank, along with CBA’s online brand NetBank.
Henderson said despite a renewed emphasis from the big four in their online offerings, he is happy with its position in the market.
“We offer a direct mortgage solution right now and our customers can apply for a direct mortgage through our direct channels,” he said.
“We are pretty comfortable with the way our products are priced and the value they offer the customer.
“Obviously we are keeping an eye on what’s happening, but we are comfortable with the position we are in right now.”
An important part of ING Direct’s strategy to defend its market share is a focus on innovation through its core online channel and increasingly, investment in the mobile channel.
The main areas of focus are personal financial management and an upcoming launch of “pay-by-bump technology” which allows consumers to transfer money quickly between mobile phones.
The technology has been offered by PayPal since last year and allows consumers in close proximity to make payments to each other by bumping their iPhone or Android smart phones together. The application is able to pinpoint the identities of the two mobile phones and enables one user to input a value to transfer across to the other party’s PayPal account. ING Direct expects to have a similar product in the market by September this year.
Personal financial management (PFM) technology, a tool which helps consumers manage and analyse their finances and spending patterns, is another area of interest to Henderson. A launch of PFM is further away because many of the main providers of the tools are based in the US and are not yet operational in the Australian market.
Henderson said PFM is one of a range of initiatives he was considering.
He said the bank would look to add to its current product offering selectively in the coming year.
“You have got to really look at what is possible and what adds value in terms of the customer experience,” he said.
“One thing we don’t want to get into is chasing the technology market around and coming up with different solutions for different things because it is confusing for customers. It also starts to push you away from a low cost model, which is a huge advantage for us. We will wait for the dust to settle to some degree.”
Technology is not the only thing required to build an online platform that customers want to use, however. Henderson said 80% of the usage of the ING Direct website was for simple enquiries like balance checks and transactions. It suggests that, more than anything, successful online propositions need to allow consumers to get in, get out and get around as quickly as possible.
Something of a banking technology arms race has broken out in Australia.
In February, CBA said it would increase investment in its new core banking system –SAP for Banking – from its original estimate of A$580m ($593m) to A$1.1bn.
The following month, in a briefing to analysts, CBA claimed its new core banking platform gave it an IT lead of three to five years over its rival banks in the region.
CBA CEO Ralph Norris said the IT investment would reduce the time to market for new product from months to days.
CBA CIO Michael Harte told analysts the bank was already in discussions with PFM vendors and a PFM tool would transfer the benefits of real-time account processing from the core into the hands of customers.
NAB is also investing in its banking IT systems, via the use of a new Oracle platform for its UBank subsidiary which will be rolled out across the rest of the group in due course.
Meantime, Westpac announced in July last year that it had selected technology from US-based Fiserv for an overhaul of its retail online services.
At ING, Henderson said it had kept IT systems as simple as possible.
“Most of our high volume stuff is simple transaction history, account information-type queries. We have in the past had some fairly simple products,” he said.
It is a strategy which seems to be working for ING in Australia; total customer numbers have grown to 1.4m and in fiscal 2010, net income grew by 5% to A$275.9m, its highest ever.
Accumulated profits before tax from the ING Direct unit in Australia are now approaching €1bn since its establishment in 1999.
Deposits increased by 10% to more than $23bn, equivalent to a market share of just over 3.5% of the country’s total retail deposits.
Its cost-income ratio was 38%, but one negative was a 12 basis point drop in its net interest margin from 1.37% in 2009 to 1.25% and considerably lower than its big four rivals.
NAB’s net interest margin, for example, stands at around 2.2%.