Samsung: China Tv Market

ING Direct

1. Understand ING Direct's competitive strategy within the banking industry. Also describe factors attributed to ING Direct's success.

Focused Product Strategy: ING Direct targets affluent customers by offering simple products, no or low fees, high returns on deposits, and service via call centers, the internet and mail. ING Direct offers predominantly savings accounts in all countries; in some countries it also offers products like: term deposits, consumer loans, mortgages, life insurance, brokerage and a few selected mutual funds.

Very competitive cost structure: ING Direct considers Fidelity and other asset managers as their peers, specifically in terms expense-to-asset ratio. At maximum 40 basis points, this is at least two percent lower than that at a traditional branch-bank, which typically operates at around two-and-a-half percent. ING Direct even expects their ration to go lower to somewhere around thirty basis points in 2006.

Staying away from branch-delivery: ING Direct does not offer traditional checking/current accounts, which are usually used to pay monthly bills and buy goods in stores. These accounts have a large number of transactions each month, naturally requiring a physical branch to service customers' needs. For these types of account, ING Direct points its customers to their local banks. By encouraging customers to use low cost channels such as the internet or telephone, ING Direct managed to keep their cost really low.

Low fees, few requirements and simple rules: The problem with many traditional banks is that they move a lot of their income into the fee structure. Customers tend not to like this, especially when banks hide their fees under special rules, such as "If your balance exceeds one thousand euros your fee is reduced...". ING Direct became very successful by getting away from the intricacies of fees by keeping them low and simple.

2. Present your thoughts regarding technology contributions to the bank's strategy. Was technology a crucial factor in enabling the bank to sustain its advantages? If no, why not and if yes in what way?

Information technology plays a really important role which is crucial in the success of ING Direct. By concentrating on the internet and the telephone for customer access, the bank established itself as a "click-only" financial service institution, rather than the more traditional "click-and-mortar" or even "brick-and-mortar" banks.

This strategy enabled ING Direct to sustain its advantages mainly through the following aspects:

a. As discussed above, this strategy enabled them to push down costs, which in turn helps keep fees low, savings interest rates high and credit rates low.

b. Adding customers by hundreds of thousands every month is made possible by this extensive use of information technology. Customers can simply open accounts on-line or through call centers without having to flock into bank branch offices.

c. Replication of services into new countries is made simple by relying on information technology to automatically set operations up.

3. Prepare your assessments on the sustainability of the strategy. Is there any barrier that may inhibit imitation (you may use the ideas presented in the assigned reading)? Describe in detail.

E-banking, a term popularly used for the way ING Direct operates, provides a very low entry-barrier for competitors to enter. Any bank can quickly duplicate ING Directs strategy and services, making imitation an easy task. In order to sustain its leading position, ING Direct should modify its strategy to cover some of its "shortcomings" to make imitation harder. Namely, it should provide a quick solution to the issues described below.

By its own simplicity, ING Direct is limiting its appeal to a certain part of the society, i.e. people who do not like complex (and thus high cost) banking services. There are however, a large section of people in many countries who do need relatively more intricate types of transaction. These people will not be entirely convinced that ING Direct is the only bank they need.

The downside to ING Direct is that the only way to transfer money between ING and your "brick-and-mortar" checking account is via inter-bank transfer. In the US this is known as the ACH (Automatic Clearing House). It is how banks -- with the exception of Fed wire -- electronically transfer money to other banks. Paper checks are also cleared this way. It normally takes 2-3 days for money to be transferred and accounts settled. Since 2004 banks could cut down the processing time to mere hours, but for the consumer, it will still be 2 day wait for accounts to settle. Savings deposits are also subject to a 5-day business day hold before it can be transferred/withdrawn out.

Another downside is that ING Direct's savings account is for personal use only, and can be established either for one person "Individual", or two people "Joint account". The account cannot be used for business, as a pension, or have a power of attorney attached (beneficiaries). Revocable trust, bancassurance products, or other trust accounts are also not offered.

Another limitation is how ING Direct compounds interest on their certificates of deposit (CDs). ING Direct compounds interest on an annual basis, not on a daily basis like so many