ING Direct A Fresh Approach to Net-only Banking Combined with a “Best of the Web” Savings Account. (NetBanker)

ING Direct wins an OBR Best of the Web for its creative approach to selling and servicing savings accounts. While most banks treat savings like an afterthought, ING Direct gives this overlooked product center stage. How many banks put their savings rate on the home page? (4.40% APY in upper right).

The Company

ING Direct, as you might have guessed, is the direct banking arm of Netherlands-based ING Group (US$600 billion assets; 100,000+ employees). ING Direct, fsb, www.ingdirect.com the U.S. division based out of Wilmington, DE, is one of six direct banking units. The others are in Canada, Australia, France, Italy, and Spain. The Canadian division is the oldest, launched in April 1997, even before the Web became a major factor. It boasts a customer count of 400,000 with more than US$3 billion in assets.

The U.S. unit was launched in Sept. 2000 and has attracted 230,000 customers and $2.1 billion in deposits during its first year. By 2001 standards, the company has spent relatively lavishly in its branding campaign, especially in the eastern United States, where it also opened a pricey Internet café in Manhattan. Its TV spots, catchy black-and-white except for a bouncing orange ball, tout the company’s high savings rate, which a year ago was a more eye-catching 6.50% (APY) compared to its current 4.40%. You can view the ads on its Web site.

The Products

The biggest surprise in ING Direct’s product line is what it doesn’t offer. There is nary an electronic banking service in sight: no checking account, no ATM card, no credit card, and no bill payment.

After seeing many Net-only banks sink millions into exotic transaction accounts, ING Direct decided to use the old-fashioned savings & loan model, concentrating on savings accounts and mortgage lending. The company also offers a revolving loan product and certificates of deposit.

The entire brand, and all products, are wrapped in an appealing orange name and logo: Orange Savings, Orange CDs, Orange Loan Account, and Orange Mortgages. The Web site and collateral material all use an orange-and-blue color scheme with orange balls directing the eye to key navigation choices. And the biggest surprise came in the mail when the first paper statement arrived. It’s the first we’ve received that was obviously designed by someone outside the IT department. The statement includes a large orange in the upper left-hand corner that highlights the interest you earned during the statement period. That’s great relationship marketing.

ING Direct’s elegant funds-transfer function features a simple interface where funds can be transferred among ING Direct accounts and to/from outside account. Funds can be moved immediately (far left), at a future date (middle), or set up on a recurring schedule (far right).

Note: (1) The current balance is placed next to the account name to cut down on transfer mistakes.

(2) The bank disables the browser toolbar within the online banking area so navigation is cleaner.

ING Direct’s online newsletter, appropriately named “Bright Spots,” is gorgeous and customer oriented. It’s delivered via PDF plug-in. On a broadband connection, it’s a great solution, but at 1.4 MB too slow-going for dial-up users. The bank should add an HTML version for the 56k crowd, or at least warn users before dropping a 1.4 MB download on them.

Analysis¹

Conventional wisdom holds that savings accounts, while a profitable adjunct to a customer’s checking account, are unproductive to sell as a stand-alone product. In the bricks-and-mortar world, where checking accounts rule, that logic is undoubtedly correct. But in cyberspace, where you can’t even give checking accounts away, the math is different. Even low-balance savings accounts, equipped with ACH funding, quarterly paper statements, no check processing expense, and virtually no customer service, can provide a positive contribution¹. And if the company can cross-sell enough revolving credit and mortgages, they could turn an acceptable profit for its parent.

We think ING knows something that Compubank and SFNB never figured out; after all, ING has been running a successful direct banking operation in Canada since early 1997. If you combine good rates, easy funds transfer (e.g., ACH), and attractive packaging, you can build accounts and balances.

During its first year, the company added nearly 5,000 accounts per week. An impressive rate, considering it took SFNB several years to get its first 10,000. Of course, ING Direct has a marketing budget that far exceeds most online competitors. But its marketing would be in vain if it didn’t have such a compelling product.

But ING’s apparent success isn’t just from throwing money at the problem. If that were all it took, OnMoney.com and Wingspan would be the biggest banks out there. From top to bottom, ING Direct has built an elegant and well-executed online bank, from its Web site to its toll-free customer service and monthly paper statements.

That said, ING’s delivery is far from perfect. For example, it’s online customer service, both from an information standpoint (FAQs) and availability (no prominent links) is surprisingly weak. Following is a list of overall strengths and weaknesses of ING Direct’s online services.

¹Full disclosure, OBR’s Editor has consulted for ING Direct in the past.

²We use “contribution” in the accounting sense, where the variable revenues are greater than the variable expenses, therefore providing a positive contribution towards paying fixed costs, and hopefully an overall profit.

Pros

Great brand and positioning, the Orange is appealing (no pun intended) and memorable; the “get back to basics” tone is right for the times
Superb Web site design: graphics, layout, navigation, copy-writing
Users can choose account nicknames, an essential feature to encourage multiple savings accounts (college fund, junior’s allowance, etc.)
It’s very easy to setup an additional savings account after the first is established; it takes less than 60 seconds using the Open New Account tab within the online banking area
Transfer Money can be used to move money within your ING accounts or to/from an outside account(s)
Transfer Money also features future-dated transfers and recurring transfer setup
Excellent online newsletter
Refer-a-friend program: the referral source gets $10 and the new account gets $25; we like that 70/30 split of the bonus pot; its good for everyone
Within the online banking session, the browser toolbar is disabled, forcing users to use the bank’s navigation (for the most part, this works well, although there are a few rough spots)
Opt-in and changeable marketing preferences
Attractive consumer newsletter delivered online via PDF
7/24 customer service; a rare show of customer support from a Net-only bank these days
Outside accounts authenticated using the two-deposit algorithm pioneered by PayPal (although interestingly, you don’t have to verify the outside account for the initial deposit)

Cons

Why the café in Manhattan? (And another set to open in Philly.) It seems like fluff at best, even counter productive, given their company’s “back to basics” positioning. But we don’t spend much time in NYC, so maybe we are missing something. Check it out yourself on E. 49th between Park and Madison Avenues.

And speaking of fluff, the company recently added the above shop@INGdirect logo to a prominent position on its home page when we clicked on it, we expected to see a clever pitch for savings accounts or loans, but it’s a link to its merchandise store to buy hats, shirts, and orange Slinkys, even a $525 mountain bike. The stuff is cool, kind of Kozmo-ish (oops! not a good association), but does anyone really want to pay money to advertise their bank? It seems like a colossal waste of prime home page real estate; the link to the company store should be buried in the About Us section, where the bank groupies will find it anyway. Now, should I get the ING polo or New Zealand rugby shirt?
No support for wire transfers, even for account funding.
No online method for adding additional outside accounts to move money to/from (only the first account used to fund the initial deposit is setup online); a laborious snail-mail procedure is required to add additional accounts which includes writing a paper check to the bank “for any amount, even $1.00.” The bank should allow the use of a voided check.
A limit of 3 outside accounts can be linkedd
FAQs are very skimpy, just a single page; and don’t address many routine questions
Not enough discussion of security issues; it needs to provide more assurances to prospective depositors
No service/fraud guarantees
It’s difficult to login: ING assigns a random and difficult-to-remember 7-digit customer number to use for logging in; compounding that frustration is that the bank doesn’t use the password you selected at signup, instead a 4-digit PIN, also selected at account signup, is used
No online method or hints for retrieving forgotten passwords, you must call customer service
Weak email customer service; I couldn’t even find it my first time on the site, it’s hidden in a tiny link in the lower-left corner of the online module and it’s a generic sales address, sales@ingdirect.com ; it makes you feel like they want to avoid online interactions
No Web-form for composing customer service queries
Within the online banking module, the toll-free customer service number is not prominently displayed (outside the secure zone it’s well positioned)
When establishing an automatic recurring transfer, there is no email confirmation of the setup; worse there is no online way to change, cancel, or even look at what you’ve established; you must call customer service to make changes or cancel
No email confirmations of deposits or transfers
No wire or ATM access to savings account funds; users must wait 2-3 days for withdrawals to arrive at another account via ACH (electronic transfer)

ING Direct’s email customer service support consists of a single generic email address directed to the sales department, sales@ingdirect.com .

Summary

Despite the long list of needed improvements, most of which are relatively minor, we really like what ING Direct is doing. They are putting sizzle into an otherwise commodity-like banking product. Given the 230,000 customers they’ve pulled in so far, it appears the American consumers agree with our assessment. Combined with its Canadian operation, ING has made strong inroads into North America. It will be interesting to see what they do next.