Since setting up shop in the UK in 2003,
Dutch-headquartered online banking pioneer ING Direct has been a
financial disaster, losing more than €254m in the process. Now, it
is fighting back and plans to fill in the gaps in its UK product
line-up to become a full service bank. Douglas Blakey
reports.
Go deeper with GlobalData
The loss-making UK unit
of ING Direct is to revamp its business model to become “a full
service bank”.
ING spokeswoman Carolien van der
Giessen told RBI: “ING is repositioning our UK ING Direct
savings business to be profitable when the unusual Bank of England
rate position eases.
“We are successfully attracting new
savings customers in the UK to our low cost, simple and
high-quality service offering. We have established a growing and
profitable mortgage business and are currently investing in
additional products to develop a full service bank that will meet
the needs of our customers.”
ING Direct’s current UK operation
is limited to savings, mortgage and insurance products. It does not
offer current accounts, credit cards or personal loans, with
customer service and sales conducted online and by telephone.
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By GlobalDataING has not, however, ruled out the
possibility of establishing a bricks-and-mortar presence in the UK.
An ING insider told RBI that the Dutch-headquartered
lender was examining what lessons the UK unit could learn from the
bank’s most successful markets.
Interestingly, the option of
setting up a flagship ING Direct café in the UK, on the model of
the bank’s hugely successful US cafés, is one option reportedly
under consideration.
US success
The bank grew its physical presence in the US in 2009,
increasing its network of iconic café outlets to eight, and it does
not rule out further expansion.
ING Direct has earned accumulated
pre-tax profits of around €1bn ($1.3bn) since it launched in the
country in 2000, in the process revolutionising direct banking.
In that time, it has seen off a
growing number of US-based direct banking rivals, such as Citi’s
short-lived CitiDirect brand, which launched in 2006. It has
strengthened its position as the market leader, despite a wave of
fresh competition from US-based insurers including MetLife Bank
Allstate Bank and State Farm Bank.
By contrast, ING Direct’s UK
business unit has only posted a profit in two years (2006 and
2009). In the first half of this fiscal year, it reported pre-tax
losses of €15m, bringing its accumulated losses to €254m since the
division was established in 2003.
In 2006, ING told investors that
“measures are [to be] taken to reposition the business, among
others targeting for less rate-sensitive clients”.
Since then, the UK division has
lost €122m.
In 2008, ING told RBI:
“The UK is an important market for ING. We are confident that
management, pricing and marketing initiatives will be successful
but [they will] require significant investments and time. Remedial
action has been taken to reposition the UK business strategically,
including management changes, increasing the savings rate and
undertaking significant marketing spending.”
Average balances per UK
savings clients have declined sharply, down to €11,500 in the
second quarter of 2010 from €20,000 in the fourth quarter of 2007.
At the end of 2006, the average UK customer balance was
€38,000.
Funds entrusted within the UK arm
of ING Direct amounted to €16.3bn at the end of June, down 8.4%
compared with the end of 2009 and less than half the high point for
the unit by that measure; at the end of 2006 funds entrusted peaked
at €36.3bn.
Christopher Hitchings, analyst at
investment bank Keefe, Bruyette & Woods, told RBI: ”
ING Direct UK made errors at the start and focussed too much on
high net worth individuals. It did not follow the usual business
model.”
According to Hitchings, the most
pressing priorities for ING are repayment of €5bn of bail-out funds
received from the Dutch government and separation of ING’s banking
and insurance units.
“That process is an enormous
exercise for a business which has been a bancassurer for 20-plus
years. But if someone came along and made an offer for ING Direct
UK, I am sure they would consider it, but with Egg also up for
sale, I don’t see it.”
ING beat analyst forecasts for the
second quarter, posting net profits of €1.09bn, compared with a net
profit of €71m in the corresponding period last year..
ING Direct’s Canadian unit has also kicked off a major expansion
of its product range. It is launching ING Thrive, a current
account, following a trial of the product involving 10,000 existing
customers.
