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Banking digitised

ING boss Ralph Hamers believes finance products are similar, so their delivery has to be different.

ING chief executive Ralph Hamers.

Mr Hamers: "I am a big believer in the commoditisation of products. I don't think products will make the difference when it comes to financial services."

THE biggest challenge facing Dutch bank ING chief executive Ralph Hamers is not coming up with new banking products, but delivering existing products smoothly.

The challenges posed by fintech - a new wave of tech firms offering various lending, payments and wealth management services in a single borderless platform - loom large in his mind.

"I am a big believer in the commoditisation of products," Mr Hamers tells The Business Times. "I don't think products will make the difference when it comes to financial services."

ING is thus aiming to deliver banking services on a single platform that it can scale globally. And if it can't beat its disruptive fintech rivals, it will join them. Already, the bank is taking advantage of upcoming European regulations forcing banks to allow third parties to securely access customer account data like transactions and balances, with customer permission. This year, ING is collaborating in Spain with a US fintech to provide instant loans to small and medium enterprises (SMEs) - using payments records from other Spanish banks to check for creditworthiness. In the UK, where it does not have a retail presence, ING is testing an internally-developed app to give customers a way to view all their bank accounts - money stored with ING's rivals - on one platform.

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It is not yet clear if ING's fintech experiments will take off.

But ultimately, a bank can succeed if its customers interact with it in an accessible way, Mr Hamers says. "That's the way to grow. It is the way the fintech guys do. They're raising the bar, in terms of the experience that customers want."

Fintechs are now challenging banks by offering services that are "personal, instant, relevant and seamless, all at the same time".

Customers expect no less, he says.

A digital consolidation

Thus ING is pouring immense resources into tech. In October, Mr Hamers announced the bank's intent to invest 800 million euros (S$1.2 billion) in digital initiatives over the next five years, in a bid to reap 900 million euros of annual cost savings by 2021. The ultimate goal is to build a single global scalable banking platform and to improve customer service.

To get there, a programme dubbed the "Orange Bridge" will first be executed in the next two years. This will merge retail banking systems in two of ING's biggest markets, the Netherlands and neighbouring Belgium, into a single integrated universal banking platform. Separate legal entities and balance sheets are maintained. Physical branches will be closed down.

Five digital banks in ING's smaller but still significant markets in Austria, Czech Republic, France, Italy and Spain will also be combined into one. These banks already typically operate without a physical presence.

Other initiatives will be implemented across support functions like IT, risk, finance and human resources.

The digital consolidation process had actually begun six years ago for ING's wholesale bank, which lends to businesses and provides transaction services. Consolidation remains an ongoing process.

"I have to admit that we started this from the perspective of efficiency. We standardised our products, our processes and our systems across 43 countries," Mr Hamers says.

Clients loved the new interface, he adds. The efficiency project had become a differentiated service offering. "They have, on their iPad, a dashboard that shows them, all of their banking affairs with ING, multi-country, multi-product, real time."

"If you're based in Amsterdam, you can make the payment in Romania, and you can have the mandate for the Romanian treasurer to initiate the payment on that screen with a code he gets on his iPhone.

"And at the same time, after that, the treasurer in Amsterdam or the US or wherever he is travelling, he gets this push notification, saying there's a payment waiting for your approval, and he will just use his fingerprint and it's gone."

Among ING's latest offerings is a virtual cash management system that can help company treasurers manage and reconcile their cash positions and customer payments across different countries. These systems, which allow companies to assign virtual account numbers to their customers to simplify payments, are not new to the market, though not all banks have them.

Meanwhile, ING is also working with dozens of fintech startups in four areas: Aggregating information across banks, payments, robo-advice and instant lending.

The future of banking lies within the idea of combining functions into a single platform, Mr Hamers says. "The future is that, if you're truly client-focused, you should be able to give that client their financial state of affairs, whether an individual or corporate, across all of the banks they deal with."

Using rivals' data

ING's task of offering customers in Europe a one-page summary of their financial information - even if they have accounts with rival banks - is made easier by the revised Payments Services Directive (PSD2) by European regulators. PSD2 comes into effect in 2018.

Among other things, PSD2 allows third-party application programming interfaces (APIs) to access bank data, provided permission is given by customers.

In the UK, ING just launched a personal finance app called Yolt, which is in its initial testing phase. Users enter their various bank and credit card details, and they can view all their UK bank accounts in one platform. The app helps users plan their saving and spending. Commentators have noted it potentially gives ING power to influence where its rivals' customers bank. They added that ING could eventually offer savings accounts and lending services there. Mr Hamers says that through Yolt, "we can basically give them information saying, well you better move your savings from this bank to another bank, or if your spending patterns continue like this, you better transfer some money to your current account otherwise you'll be in debt".

Meanwhile, ING has launched peer-to-peer payments app Twyp in both Spain and in the Netherlands in the past year.

Like Yolt, Twyp is a free app with potential to disintermediate rivals. It lets people pay one another using their mobile numbers, with no fees charged for making or receiving payments using a non-ING bank account.

A recently-launched service called Twyp Cash allows app users to withdraw money with their smartphone when paying for purchases at thousands of supermarkets and petrol stations around Spain.

"You're not dependent on an ATM network anymore. It's very easy, the service generates a (code), the (code) is scanned by the shop, and you can get your cash," Mr Hamers says.

However, these fintech experiments might not take off.

While Twyp has attracted more than 300,000 users in Spain, it flopped in The Netherlands due to numerous competing alternatives. It will shut down there on Dec 15. "Dutch Twyp users have told us they don't need or want a separate app to make payments to friends. This was difficult to hear, but we take all of your feedback seriously," Twyp wrote on its web page. Said an ING press release: "Innovation doesn't just mean developing ideas but knowing when to stop them."

Towards a digital SME bank

Meanwhile, the idea of instant lending to SMEs might sound exciting, but getting that money is easier said than done.

Instant lending is the biggest opportunity among the fintechs that ING works with, Mr Hamers says.

Last October, ING announced a partnership with Kabbage, a US fintech it had taken an equity stake in. The partnership offers SMEs in Spain loans of up to 100,000 euros. The platform offered onboarding, credit scoring and a potential loan within 10 minutes.

Credit scoring is done using information freely available on the Internet. Kabbage's technology can assess the creditworthiness of a restaurant, for example, by using its rating on the TripAdvisor travel website. Algorithms can check payment records of other bank accounts that applicants have, in order to come up with a credit score.

But since the programme's launch around the middle of the year, loans given thus far have been "limited", under 100 million euros, Mr Hamers admits. The acceptance rate is low due to strict underwriting criteria.

The thousands of prospective clients "love the service although the majority still has received a 'no' answer", he says. "They don't mind to have a 'no' after 10 minutes. They hate to get a 'no' after three weeks dancing around with a relationship manager." The conservatism still pays off. Just one loan has defaulted, he notes.

Meanwhile, technology has brought other benefits to ING.

To make it easier for customers to open new accounts in Germany, ING used biometric face recognition technology to verify the authenticity of one's identity card as part of the client onboarding process. Fraud cases are halved for clients onboarded through face recognition, compared to clients who come through physical channels, Mr Hamers says.

"It's cheaper, it's faster as well for the client, and it's safer. That's the beauty of technology, the knife cuts many different edges."

The instant lending experiment, meanwhile, ties in to a bigger goal: To build a digital SME bank, instead of a physical one with branches.

"Half the market still believes that you need to have branches and relationship managers to do SME banking and we think we can reinvent SME banking, fully digital," Mr Hamers says.

"Who wants a relationship manager if you can do it all digital? I think you have to move away from thinking that you want to migrate towards the old bank (model). No, we're creating a new bank."

Managing the human cost

The dark side of ING's tech push is the number of workers who will be displaced.

ING is getting flak back home for laying off some 7,000 people, mostly in Belgium and the Netherlands, as it scales down its physical branch network to pursue its digital strategy. These are ING's heaviest job cuts since 2009.

In Singapore, ING has around 450 people on its payroll. Mr Hamers tells BT: "We're not retrenching here. We're growing here. The staff and the region will only grow."

In Asia, ING provides trade financing to corporates. Mr Hamers sees growth opportunities in the metals and mining, utilities and infrastructure sectors.

"We compete with some players, but there's not that many players. In worldwide trade banking, there are maybe four players . . . that deliver a global service. And these deals are often also big enough to share, certainly the longer-term deals," he maintains.

Restructuring is not new to ING, says Mr Hamers, who joined ING in 1991, a year after the bank was created with the merging of insurance company Nationale-Nederlanden and banking company NMB Postbank Groep.

And in the years since the global financial crisis, ING, which took Dutch state support to deal with the crisis, sold off its insurance and investment management businesses around the world.

"With digital coming in now we'll work with even less people going forward," he says.

The retrenchments he announced will take place in the next four to five years. The bank wanted to be transparent so society stakeholders and its employees know what they are up against, Mr Hamers says.

Retrenchments are harsh, but the bank has programmes in place to help, negotiated with unions and worker representatives, he adds. This includes coaching for job application processes, and providing and financing some courses for them to find a new role - failing which employees will get a severance package.

"There is high demand for people with a background in banking, not necessarily to have their next job in the bank," he says.

"We have to make sure . . . that you take care of your colleagues, that you treat them with respect."


CEO , ING Group

1966: Born in Simpelveld, Netherlands

Education: MSc in business econometrics and operations research, Tilburg University, Netherlands

1989-1991: Worked as an accountant in Canada, and at ABN Amro

1991: Joined ING as a structured finance relationship manager

1995: Became head of media finance group

1997: Deputy general manager, global lending risk management

1999: General manager, ING Romania

2002: General manager, ING Bank branch network

2005: CEO, ING Bank Netherlands

2007: Global head, commercial banking network

2010: Head of network management for retail banking direct & international

2011: CEO, ING Belgium and Luxembourg

2013: CEO and chairman of the executive board, ING Group