Dutch banking giant ING thinks it can teach the new crop of app-only banks a thing or two about innovation and disruption.
“We like to say we’re a 20-year-old fintech,” ING’s head of fintech Benoit Legrand told BI at the Money2020 Conference in Copenhagen earlier this month.
“ING Direct was launched about 20 years ago and we disrupted ourselves in the previous wave of digitisation which was the internet.”
ING Direct was one of the first branchless banks, offering services over the phone, the internet, and by post. Legrand says: “The direct banking model, it was a revolution at that point of time when we launched it in the US, the UK, Canada, and elsewhere. Eventually, came out with 22 million customers and €250 billion of savings and the first online bank.”
So what can they learn from ING? Legrand says: “Frankly, if you look at the neobank [as app-only banks are known] space — they’re flourishing everywhere but we’re still waiting for the business model to show up. Where is the money? Where is the return?”
Banks ultimately make most of their money through lending but the current crop of new banks have not yet announced plans to do this. Some, like Number26 and Mondo, appear to be exploring a more broker-based model, where they sell products like loans and mortgages to customers over their platform and take a cut.
For now, though, all are investing in hoovering up users. Legrand says: “It’s good to acquire customers but I can tell you when we started ING Direct it was a 10 to 15 years process. Eventually, we accumulated about €1 billion of losses. It’s not €20 million of capital you need if you really want to be serious.”
These losses were in part due to the financial crisis and peaked in the middle of that 15-year process. Today ING Direct is in a healthier state. But Legrand’s point is that in order to build a bank of any serious scale, you need seriously deep pockets. Acquiring customers is a costly business.
It’s not €20 million of capital you need if you really want to be serious
He adds: “Those guys [neobanks] are competing with the big banks but also with the Amazons, the Googles, who have an immense power. We look at Alipay for instance. It’s a tricky game.”
“I think there’s a lot more pressure between fintechs against each other than between fintechs and banks. If I led a fintech, I would be more concerned by other fintechs getting more capital than me or being present in more countries than I am, or signing more contracts with banks. There might be one or two fintechs in each area surviving, and if I’m not that one, I die.”
That goes not just for neobanks but any consumer facing fintech startup — peer-to-peer lending, crowdfunding, international money transfer, etc.
‘It’s like the printing revolution in the 16th century’
Despite Legrand’s warning to startups, he admits that there are things that they can do better than ING. He says: “I believe we have a lot to learn by finding within each other the strength which we are lacking. ING, we have 34.4 million customers, €850 billion balance sheet, but we somehow lack agility compared to those fintechs.
“The fintechs can bring it but, usually, they have no brand and banking is still about trust right? Brand and trust is something we can bring to fintechs. There are models, like for instance the one we use with Kabbage.
“We are a shareholder of Kabbage but we also have a commercial agreement with them to bring their solution to our customers, not because we like to work with fintechs as an aim, but because we think that they have a technology which can help us do what we want to do, i.e. lend more. Banks want to lend.”
While Legrand expects a winnowing of the fintech field in the coming years, he does believe the market is undergoing a fundamental shift, saying: “The change that we are facing is, of course, technological but that’s not what it’s all about. We think it’s more cultural, about the way we look at things and how we implement things.
“We have to be humble about this. You need to turn around your way of thinking from, let’s say, a bank-centric model where we were the centre of the world and the customers were just hanging around — that’s changed, right? Customers are effectively in the centre and banks have to rotate to get the attraction of customers. This is really what is happening today. It’s like when we had this printing revolution in the 16th century. It’s the same thing.”
He adds: “We are used to those times when you have to put yourself into question and ask, what are we doing here? Is this right or wrong? We were able at that time to change the way we were working. This for us is just the next step. It’s not a new thing, we’ve been preparing ourselves without knowing it for the last 20 years.”