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ING Direct: Rebels with a Cause

At every conference you find a few highlights, and this one is no
exception as I attended a plenary keynote yesterday starring Arkadi
Kuhlmann, Chairman, President and Chief Executive Officer of ING Direct

In a few short years, ING Direct has become one of the largest
Internet-based banks in America, and has earned a ranking on the list
of top thirty U.S. banks overall.

In a candid interview with Bill Taylor, Co-founder and Founding Editor of Fast Company, Arkadi shared his business ideas and here’s my rough summary of the conversation:

Bill Taylor: how did you build this bank?

Arkadi Kuhlmann: There are 9,600 banks in the USA so who needs another
one? That was the challenge we had and we thought that if you do
everything like everyone else, how can you expect the results to be
different? This meant that it was time to look at the business model to
see if we could do things in a different way. A way that may be counter

So we focused upon building liabilities rather than assets. 

We know that banks create assets and fund them as cheaply as possible
and enjoy the margin. So we said let’s do this the other way, and grow
liabilities first. So we focused on gaining deposits, and finding
assets as the second step. Many say that is nuts, as you are funding
liabilities and so how are you going to find the assets but, if you are
going to be different and try something to see if it works, you have to
change the definitions.

Bill Taylor: how did you find the innovation to be different?

Arkadi Kuhlmann: The best way to find innovation is to look at other industries.

For example, if you’re looking for innovation, why look at other banks?
You just get the same old thinking. So we looked at hotels, airlines
and more, and the model I liked the most was fruit and grocery stores.
These stores are running a 1% margin business, with limited shelf space
and trying to attract customers, and are challenged by that because
they all look the same. We thought: “what if we were in that
environment as bankers?"

You can then put down some key drivers, and ours were that we needed to
deal with high volumes at low margin in a commodity business on a large

Bill Taylor: and so you then need to advertise that message too?

Arkadi Kuhlmann: Every bank has ads with kids running through wheat
fields and saying “we love our customers”, but everyone realises that
that is BS. Stop advertising “we’re there for you”, and focus on
delivering on the things that customers really care about. That’s why
we focus upon the causes we promote, and the advertising and promotions
are all about what mainstream America cares about and what customers
care about, not what bankers care about.

BT: and what do customers care about?

AK: if you could build a bank just functionally or technically, people
would have done that, but you need to understand how customers are
technically interwoven with money. Our rates are not the highest, and
we are not the best at services, so why do people stay and why do they
come? It’s about the beliefs and values of our bank and how we convey
that to them.

Mainstream America is looking for people to validate their beliefs and
for authenticity. That is why I make a phone call every week with a
customer: to understand them better. And those calls are a bit about
the transaction, but mostly about money and their views about money.
You must understand how customers see money, as this is powerful.

BT: so do you categorise customers based upon limits and values, as you don’t appear to?

AK: I have no minimums on our accounts, we only have maximums, and I
don’t like and don’t want rich Americans. I don’t want all their
bitching and moaning. They come in and say, “I’m willing to give you a
million dollars, what are you going to do for me?” and I say,

There’s no hierarchy here. It’s a democracy and we’re all level. I sit
in the call centre. We have no titles on business cards. You have to
get rid of all that hierarchy stuff to do this business model. That’s
why we all sit together.

That’s why I tell the rich guys to go down the street and leave. I don’t’ want them.

BT: Do your staff get worried if you’re on the phones?

AK: We have 8 million customers, and about 5,000 customer account
closures a month. But those closures are because this bank is not right
for them. I actually want to get rid of those account and we do select
some where we know we are just not right for them. To close someone’s
account this way, you have to do it with compassion. So we call them
and tell them they’re in the wrong place. Not all customers are right
for ING Direct and you just happen to be one of them.

For example, 7% of Americans change their accounts every year. 3.5% of
them do this because they are looking for a better deal. The other 3.5%
are manic depressives. They’re unhappy people and they switch to us to
say, “Make me happy”. We can’t do that.

BT: How do you get everything to work together in alignment?

AK: Do you know how easy it is to run a bank when you only have one
interest rate? Ask any employee and they know the rate and 40% of
customers come by word of mouth. How is that possible? Because folks
say they know that they will get the same rate you got. You won’t get a
better deal or a worse deal. You get the same deal. That’s why
neighbours recommend us because they know they’ll all get the same

And all this cross sell stuff is over hyped. It’s cheaper to get a new
customer than to sell the existing customer a second product. In fact,
much of the stuff banks talk about is wrong.

Folks say you cannot run a bank without fees, but customers don’t
believe it. So you shouldn’t charge fees if people don’t like them.
Just roll them into something else and say you’ve done away with them.
That’s why one of our slogans is, “Bank fees are like sand in your
bathing suit”.   Customers like that.  They understand it.

BT: I understand you’ve written $26 billion of mortgages, with only 15 foreclosures. How did you avoid the problems?

AK: Most of us know that in 2002, we needed to get assets and get
mortgages. But the mortgages business in the USA I knew was just not

We think we’re the largest community bank in the country and, with that
mentality, we also think we have to keep our mortgages on the banks’
books. Selling our mortgages on Wall Street was just nuts. I mean I
don’t know anyone out there with a 30-year CD account, so why sell
30-year mortgages? That’s why we offered a five-year fixed rate
mortgage. We service them for six basis points, and we do a billion
dollars a month of them even now.

In fact, Bill, we now have $35 billion mortgages on the books. The
average 30-year mortgage lasts for seven years and you cannot guarantee
thirty years in life. We don’t know if we’ll still be healthy and
married in five years, let alone thirty.

If we had kept mortgages on the bank balance sheets, we would not have
the problems we have today. We need to keep mortgages on the bank
balance sheet. That was our view. If we cannot cover the mortgage with
deposits, we don’t take them.

I want Americans to be in their homes and to be able to keep them. A
home is a place you hug your wife and raise your kids. It’s not a
financial asset.

Ring fence it and stop the Wall Street guys mucking around with the American homestead.

When you talk to Main Street, we say if you want a mortgage, you have
to be able to afford it. That’s why I want a down payment. If customers
come in saying they want 100% loan to value, I say who’s doing the
maths here?

We can change behaviours and this country but it won’t be by Wall Street, it’ll be by Main Street.

BT: On the one hand you’re a start up but you have a big parent company – how does that work?

AK: Most of the time it doesn’t work, for the reasons of the parent
being a big old company. Think of Star Wars and the Empire Strikes
Back. We are Luke Skywalker in the orange jumpsuit. That’s us.

The culture and the way people engage are radically different to the
rest of the group, but there’s something unique about ING. They’re very
long-term focused and open to new ideas. They are in an environment
that tolerates differences of opinion and friction. And there’s an
overall broader thinking.

BT: What about hiring staff. Do you have any criteria?

AK: We don’t hire bankers, because bankers come in with their DNA and
they have their legacy which won’t fit. Instead we hire dancers,
musicians and artists.  People who can deliver a great and different

On that note, I’m going to leave it as I have about another eight pages
of notes, but you can read the rest in Arkadi Kuhlmann’s new book, The Orange Code: How ING Direct Succeeded by Being a Rebel with a Cause.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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