Virtual bank ING Direct fetches big bucks

ING's global ambitions played right into Scotiabank’s hands.

(Photo: Richard Prudhomme)

Born to Dutch financial services giant ING Groep in 1997, ING Direct was a “virtual” bank, with no physical branches. Though its earliest customers could access their savings accounts only by telephone, within months ING’s pioneering Internet service was unveiled. Already familiar with the Canadian market through existing insurance and asset management arms, ING chose to launch its first direct bank outside the Netherlands from Toronto. It regarded the initial $50-million investment as a grand experiment, lessons from which would be applied when expanding to other developed markets. Obscure Dutch actor Frederik de Groot, previously observed head-butting surly criminals into submission on the detective series Bureau Kruislaan, rose to unlikely fame advising Canadians in clipped diction to “Save—your money” by moving their deposits to ING Direct.

Some in the Canadian banking establishment regarded its generous interest rates on deposits— they began at 4%, at least double that offered by Canada’s dominant Big Six banks—as risible folly. One analyst said ING Direct could be considered successful only in terms of the volume of deposits attracted. Yet ING arrived at a time of profound anxiety for Big Six. They feared they would be unable to compete at home and abroad with such international giants (at the time ING Groep was twice the size of Royal Bank of Canada ), culminating in clumsy, thwarted bids to consolidate the sector in 1998.

Aided by masterful marketing, by 2000 the fledgling bank had more than 300,000 Canadian customers, gradually introducing GICs, mutual funds and mortgages. More recently, it even opened a handful of urban cafés— not branches, mind you—to advertise its off beat corporate culture. ING Direct’s success prompted the Big Six to speed up adoption of Internet banking. They also began offering competing low-cost, higher-interest banking options. Other players, like Manulife Financial and American Express, followed suit, squeezing ING Direct’s profit margins.

Old anxieties die hard. At the nadir of the financial crisis in early 2009, Scotiabank CEO Rick Waugh again warned that foreign competitors (freshly bailed out by their respective governments) could wreak havoc on Canada’s Big Six. In fact, ING’s own ill-conceived global ambitions played right into Waugh’s hands. After receiving a €10-billion bailout from the Dutch government in 2008, ING embarked on a fire sale of foreign divisions and “noncore” assets that continues today. Capital One picked up ING Direct U.S.A. last year for US$9 billion, and in August Scotiabank announced its bid to acquire the Canadian division for $3.1 billion. That price, as much as three times what some analysts expected, testifies to ING Direct’s gradual if unspectacular success over 15 years, which saw it grow to 1.8 million customers and 1,100 employees. But the larger winners were all Canadian retail banking clients, who can bank more cheaply as a result. The ING Direct brand will disappear from North America entirely in the months ahead, although Scotiabank vows to operate its new division separately. The brand persists (for now) in Spain, Australia, France, Italy, Germany, the U.K. and Austria.