New CEO ING intervenes in digital dreams predecessor

It is the dream of many bank managers: that the bank’s app becomes the platform for customers to arrange all their financial affairs, such as loans and insurance. Which will hopefully make that customer willing to pay just a little more for the services of the bank.

The largest bank in the Netherlands, ING, was led by Ralph Hamers who left for UBS this year, six years ago one of the first to come up with this idea. Hamers then drew up an ambitious plan to equalize digitization in the more than 40 countries in which the bank operates.

There had to be a single banking platform under the hood to administer bills and process payments. There would be one ING app at the front. The idea was that it would be much easier to introduce new products in all countries at the same time.

But ING is now returning from this approach. This was announced by Hamers’s successor, Steven van Rijswijk, who started in July, during the presentation of the quarterly figures on Thursday. That decision did not come out of the blue. During Hamers’ last years it had already become apparent that in practice it is not at all convenient – and certainly not cheaper – to do the same in all countries. For example, the project to merge the ING banks in Belgium and the Netherlands was a long-term, expensive headache.

Less rigid

The main idea remains true: that customers open the app with the orange lion on their smartphone as often as possible. That not all daughters fully develop their ICT systems themselves. And that ING offers roughly the same products in all countries. But it will no longer be as rigid as in the original plan.

Also read: On the ING boss’s agenda: polishing the image and tinkering with the strategy

From now on ING will focus on exchanging programming codes and other system components across the border. “If the way in which customers have registered is set up in a smart way in one country, banks in other countries should be able to pull the code off the shelf,” said Van Rijswijk in a press statement. With this, ING is following the approach of many other new digital banks, such as the German N26 and the British Revolut, which appear to be able to operate cross-border with this block-by-block approach to ICT systems.

A thousand jobs will disappear in the next eighteen months at ING’s business branch

Van Rijswijk’s decision to make the ICT project less ambitious does hurt. A pilot project in a number of European countries is discontinued, forcing the bank to write off 140 million euros. Partly because of this, profit in the third quarter amounted to 788 million euros. More than 41 percent less than a year earlier and less than the 844 million euros that analysts had expected.

Bad news

Van Rijswijk also had bad news on Thursday for a thousand colleagues in the business branch: they will lose their jobs in the next eighteen months because ING is closing all offices in South America, and a number in Asia. According to Van Rijswijk, the intervention is necessary because of the “difficult external circumstances”: the corona crisis.

Despite the crisis, the bank showed a “resilient result” in the third quarter, according to the CEO. The bank had to set aside less money to absorb possible losses on loans. The straw pot went up by 469 million euros. In the first two quarters of the year, a total of 2 billion euros was set aside.

There was no positive response to the fair. ING’s share lost more than 6 percent. This has to do with something that will also worry Van Rijswijk: a fall in interest income by almost 6 percent. The profit margin that is made on taking savings into custody, and lending them to businesses and home buyers, is the main source of income for banks. At ING even almost 80 percent of the total income. Due to the low interest rates – which will persist even longer due to the corona crisis – that income is under pressure.

The hunt for more fees

Banks have been looking for new, more secure income for some time. This mainly focuses on fees, or fixed fees for banking services. ING managed to increase its fee income by 5 percent this year to 2.2 billion euros over nine months. But with that fees still make up only 20 percent of the total income. That has to go up.

And that brings us back to the ING app: all those adjustments are aimed at earning more fees. So there’s work to be done for the bank’s IT specialists.

Also read: Running a bank on subscription money? N26 thinks it is possible