NetBanker 2.0

ING Direct books 42,000 new Electric Orange checking accounts

According to an American Banker story last week (here), as of Feb. 1, ING Direct had cross-sold 42,000 (see note 1) checking accounts to its 4.3 million savings customers, a penetration of 1%. Keep in mind, the new checking account has been slowly rolling out over the past 60 days to current customers only (see note 2), and is not yet mentioned on the bank's website. It is expected to be launched to the general public within the next 30 days. 

You can view these initial results in two ways: 

Glass is half full -- Even with just 42,000 accounts, ING Direct may have the largest "Internet only" checking account base, at least when measured by the number of active accounts

Glass half empty -- Because ING Direct's checking account pays 50 to 80 basis points (0.50% to 0.80%) more than savings on $50,000+ balances, many (most??) of the new checking account customers simply moved large balances into the checking option, providing few incremental deposits.

Notes:

1. Make that 42,001 accounts. I just opened one this morning. It took all of about 30 seconds to do it. Existing customers simply choose an account nickname, enter the dollar amount they want transferred into the account (from the pre-existing link from an outside account), and agree to the disclosures. See below for the confirmation screen.
2. I received my invitation to open an Electronic Orange account last week (screenshot here). I've had an account there since 2001.

ING Direct's deposit and customer totals decline as direct bank competition intensifies

For the first time in its short six-year history, ING Direct's U.S. division showed declines in both total deposits and customer accounts during third quarter, the latest data available (see the table below, originally published in our year-end industry forecast, Online Banking Report #137). Although the runoff was relatively small – $600 million in deposits, or about 1% from the peak, and 150,000 accounts, or about 4% from the peak – it's a clear indicator that the entry of Emigrant Direct, HSBC Direct, and especially Citi Direct have taken a toll on the direct banking giant.

Looking at quarterly results below, you can see that average account balances began declining in Q1 2005, as some of the hottest money, large balances held by extremely rate-conscious consumers, moved to better paying accounts; still, total deposits and customers continued to grow rapidly through 2005 and into 2006. However, in the second and third quarters, deposits began to flatten as the number of accounts grew only 230,000 compared to 560,000 in the same period a year earlier.

ING Direct appears to have deliberately slowed growth by maintaining deposit rates 50 to 100 basis points lower than the new entrants. With its marketing muscle, the bank could choose to grow deposits if it closes the rate gap. The bank's new checking account, gradually rolling out to current customers, may help stem the tide, with higher rates for larger balances (see coverage here).

Table: ING Direct Deposit and Customer Totals: 2000 to 2006 (click to enlarge)

PDF version of this table here.

Everbank takes on ING Direct with 6.01% checking account campaign

Everbank launched its "What are you waiting for?" campaign today by giving away 2,500 free subway tickets at 6:01 AM in lower Manhattan. The time was chosen to coincide with the 6.01% APR promotional start-rate on its FreeNet checking account (see Note 1). 

The campaign targets ING Direct's soon-to-be-released Electric Orange checking account, which currently pays beta users 3% on balances under $50,000 and 5.3% on balances greater than $50,000 (see Note 2).

Everbank launched a microsite called <whyruwaiting.com> with direct comparisons to ING Direct (see screenshot below).

Clicking the large Compare Banks button in the lower right leads to a comparison to ING Direct and several other major competitors (see screenshot below):

The campaign has not been extended to the Everbank website, which shows a banner for the 6.01% offer, but no mention of "Why are you waiting?" (see screenshot below). 

Clicking through the banner leads to the following page:

Notes:

1. The 6.01% is a promotional "teaser" rate is good for three months, then resets to the "regular" rate which are currently as follows: 
      Under $10,000 = 3.25%
      $10,000 to $25,000 = 3.30%
      $25,000 to $50,000 = 3.60%
      $50,000 to $100,000 = 4.00%
      More than $100,000 = 4.41%
   
   The minimum deposit is $1,500 and the maximum that earns 6.01% is $100,000.
2. ING Direct customers can also easily transfer funds into the companion savings account which pays 4.5%. ING's Electric Orange account began rolling out in waves to its 4 million savings account customers in December (see coverage here). Coincidently, I received my invitation yesterday (see screenshot below). 
   
   

WT Direct takes on ING Direct at Kiplinger.com

Kiplinger published an article on the state of online banking (see article here). It's an interesting read, but it's the WT Direct ad in the upper-right corner that I found most interesting (see screenshot below). WT Direct is the new direct banking arm of Wilmington Trust (see coverage here). 

It's a Flash animation that's part parody of the whack-a-mole banner ad and part a direct shot at ING Direct.

Viewers are directed to:

"Hit the ball and get a really great rate."

That's when the humor begins. Attempting to move the cursor over the ball causes the ball to move away. So there is no way to actually click on the ball. After a few seconds, a new screen appears with two words, "Give up?" It's a not-so-subtle dig at ING Direct rates which are revealed on its homepage usually after an orange ball bounces across the screen. ING Direct is currently paying 0.75% less than WT Direct on a $10,000 balance (see note 1).   

Then finally, it's revealed who is sponsoring the ad, WT Direct: 

The landing page reinforces the banner ad with a direct comparison to ING Direct's payout with the animated graph in the lower-left corner (see screenshot below).

Nicely done.

Notes:

1. After the first 60 days, balances of less than $10,000 earn just 0.6% at WT Direct. ING Direct pays 4.5% on all balance levels.

Holiday gift ideas from my bank?

Who'd have guessed banks would become a popular source of holiday gifts, other than good old-fashioned greenbacks of course?

Now that niche audiences can be targeted with online promotions during the holidays, many financial institutions are marketing financial products packaged as gifts. Prepaid Visa/MasterCards are the hottest item, but there's also potential in other areas. 

Gift cards
The second most popular gift item this year, after apparel, is expected to be prepaid cash cards. While the majority of the $20+ billion purchased will be direct from retailers, hundreds of banks and credit unions, such as Boeing Employees Credit Union (BECU) have joined the fray (see email below). If marketed right, financial institutions could gain a significant share of total sales. See our previous post here about integrating gift cards into online banking for more information.

Credit reports
Equifax is taking advantage of the giving season to market credit reports and/or FICO score gift certificates. The cost is $20 for a three-bureau credit report, $15 for the FICO score and explanation, or $30 for both (see email below). An even better gift would be a year of credit monitoring.

Investment accounts
For years, ShareBuilder has marketed "the gift of stock" during the holidays. This year, many of its partners, such as National City Bank, are offering a $50 gift card as a bonus for new accounts (see screenshot below). That way grandma and grandpa can give junior something that's good for him, an investment account for the future AND something he'll actually like, $50 to spend at the mall.

Piggy bank 2.0
For the younger set, ING Direct has for a year been selling The Savings Machine, a toy bank/calculator/ATM machine. And judging from the note on its website,* it's proving to be a popular Deal of the Month with a lower $17.95 price tag which includes free shipping (see inset). Several years ago, ING Direct reported nearly a million dollars in sales from its online merchandise store <shop.ingdirect.com>, an inexpensive way to get its name on the street.

*Note by the "Savings Machine" product page today: All orders placed from 4 Dec to 11 Dec will be shipped out the week of 11 Dec due to the large amount of backorders.

ING Direct to launch online checking account in February

As previously reported here, direct-banking giant ING Direct (U.S.) <ingdirect.com> will soon be in the checking account business with the Feb. 1 launch of Electric Orange.
(No word on whether the German band of the same name will be part of the launch event.)

In an interview published yesterday in Delaware's The News Journal, CEO Arkadi Kuhlmann revealed important details about the effort:

• It would be made available to about 10% of the bank's 4.4 million customers in December
• The nationwide launch is scheduled for Feb. 1
• ING Direct is planning to add 500 workers at Wilmington's headquarters to support the product, an expansion of more than 50% from its current headcount of 900
• The account will NOT have paper checks, but it will allow customers to print one from their home computer if necessary
• The interest rate will be 3%, about a third less than its savings rate of 4.4%
• Surcharge-free ATM access will be provided through the Allpoint network of 32,000 machines

Product postioning
While the account sounds relatively standard for an online-only checking account, the ability to print a check from home is an interesting feature we haven't seen before. It sounds like ING Direct will be marketing ease-of-use benefits, most likely centered on the bill payment function.

The catchy name combined with ING Direct's marketing flair (see picture right from its Chicago cash-cow promotion) should make for an interesting product launch. We'll be paying close attention here and testing the account as soon as possible.

Analysis
There is little reason for most consumers to choose a branchless bank for their main checking account when they can get free checking PLUS branch services at their local financial institution. ING Direct has long understood this and has not squandered resources on a limited-appeal product.

However, with more than 4 million customers, they have a large enough base to make a profit on a checking account, even a (relatively) lightly used one.

Due to the bank's ease of use and well regarded brand, it should be able to convince a portion of its base to use Electric Orange checking as an auxiliary account, perhaps as the household bill-pay account.

If the bank moves 5% of its $47 billion in savings deposits into the checking account, it would save $3.5 million annually in interest expense. Add another $3 billion in net new deposits at a 3% spread and Electric Orange pulls in $10 million per year, enough to cover expenses anyway.

TreasuryDirect adds virtual keyboard

A number of banks, including ING Direct <ingdirect.com> and ABSA <absa.co.za> have added virtual keypads to defeat keyloggers, but the U.S. Treasury Department's Treasury Direct <treasurydirect.org> website is the first time we've seen an entire virtual keyboard. The layout is scrambled after each login, an extremely non-user-friendly feature.

The Treasury may have added a bit more security than is necessary, especially in light of Aite Group's <aitegroup.com> latest research that online banking fraud in the United States was a scant $4 million last year (correct, that is no typo, it's MILLION as in 4 cents per U.S. household). The virtual keyboard itself would defeat most hacks; there's no need to scramble it every time.

Thanks to MyMoneyBlog for the tip. Interestingly, most of the 16 comments on the new security feature were negative because of the extra hassle.

Union National's Gold Cafe

Talk about thinking outside the box: Instead of serving coffee in its branches, Union National Community Bank <uncb.com> is serving checking accounts in a cafe. The $400 million bank, headquartered in Mt. Joy, Penn., is using a strategy similar to ING Direct, except UNCB has gone as far as to remove its brand from the name, calling the financial store "Gold Cafe" (see picture right).

The cafe features a full retail coffee operation with coffee, lattes, tea, smoothies and so on priced at $1.45 to $4.45 and pastries and desserts from $1.75 to $2.25. The coffee service is run by Lancaster County Coffee Roasters.

The branding has also been extended to its website, GoldCafes.com, where the concept is supported with an emphasis on the lengthy hours, 6:30 am to 7:00 pm, Monday through Saturday, and noon to 5:00 pm on Sundays, 82 hours in total. The website also features information on an iPod giveaway during its May 11-13 grand opening. The only banking product mentioned is free checking in the lower-right corner (see screenshot).

The branch, er cafe, located near a major community college in Lancaster, Penn., includes a coffee bar, couches, an outdoor patio, fireplace, free Wi-Fi, and the ubiquitous plasma screen monitors. The bank has also created Sip, a "cultural newszine" available only in the cafe. A second cafe is set to open later this year in Centerville.

Analysis
We can't predict whether this concept ultimately works. Although we like the new-age branch concept popularized by Umpqua and others, this might be over the top. One of the biggest reasons to build branches is for their advertising value, placing the bank's brand in front of thousands of commuters and errand-runners each day. By calling it the Gold Cafe, the UNCB loses the normal branding value, but the highly unusual strategy will generate a large amount of publicity, overcoming the initial customer confusion of using a bank named "Gold Cafe." However, this is a unique situation that wouldn't readily work for other financial institutions.

The initial website is just a single page (see above) and badly needs an upgrade to cash in on all the publicity. At a minimum, prospective customers should be able to get a virtual tour of the cafe and open an account online. The site will be heavily visited by banking analysts and reporters and should do a better job supporting the publicity it's bound to attract, although the parent's home page does include a series of photos of the new concept along with a Gold Cafe link in the main navigation (see screenshot right).

If anyone has a chance to visit the branch, let me know what you think of it.

--JB

ING Direct's "unmortgage"

When  everyone is swimming upstream, sometimes the best strategy is to head down. In the soft drink world, 7-Up's "uncola" campaign is legendary. The J Walter Thompson campaign launched in 1967 ranked 61st on Advertising Age's Top-100 All-Time Advertising Campaigns (compiled in 1999). In that spirit, ING Direct Canada's "unmortgage" campaign is bound to grab attention <ingdirect.ca>, even without the fizzy water.

How often have you seen "the best mortgage is no mortgage" at a lending site? The direct banking pioneer doesn't even use the word mortgage on its homepage, instead posting an "unmortgage toolkit" along the bottom navigation (click on inset for a closeup). To further reinforce the unmarketing strategy, an unmortgage sweepstakes promises $20,000 to two customers to assist in paying down their mortgage balance (see screenshot below).

Analysis
Unfortunately, the bank does not make good on its homepage promise. Clicking on the Unmortgage Tool Kit, simply drops users into a relatively standard mortgage page with information on new mortgages, refis, and home equity (see screenshot below). Where's the "help me unmortgage my home" button, or the "five steps to eliminating your mortgage" worksheet, or even a "talk to one of our unmortgage officers today" graphic.

After a great tease, the company leaves users hanging. Hopefully, they'll remodel their mortgage page with ways for prospective customers to follow through on the unmortgage promise. Since ING trademarked it, you may not be able to use that clever name. But anyone can follow the powerful strategy of working to get your customers out of debt and back into the savings habit.

In the United States, as baby boomers head into retirement often loaded with mortgage debt, "mortgage retirement" is likely to become a major focus in the personal-finance press for decades. Now is a good time to make your mark as the unmortgage expert in your area. While it may not land you on Ad Age's Top-100 list, it could keep your mortgage officers busy for years to come.

--JB

Paperless checking accounts

If the statute of limitations on "I told you so" is seven years, then word that ING Direct is contemplating a "checkless" checking account called e-Orange comes in just under the wire. Our Virtual Checking Accounts report, which outlined just such an account, was published six years and eight months ago (OBR 50/51) (see note 1).

We've always enjoyed the ING Direct story because it defies conventional wisdom in so many ways. Here are the "rules" that the Dutch banking giant, thirteenth largest in the world, has broken:

1. Branchless, Internet-only banks can't build a large deposit base
2. Large entrenched financial institutions can't create a hip online brand
3. Mass-market banks must offer checking accounts

Worldwide, the ING Direct unit serves 15.7 million customers, and in 2005 it earned a profit of 617 million euros, about 9% of the parent's earnings. The U.S. version accounts for about 20% of the customer total, approximately three million accounts, and has been portrayed as profitable by company execs.

Why "checkless" checking?
No details are available on what an e-Orange checking account might look like. The company will only say that it's in "testing" in the United States. We've held an account at ING Direct since it opened (Q3 2000), and we haven't been approached. But it's pretty easy to guess what it would include:

1. Simple account-to-account transfers (already part of its savings product)
2. Online bill payment
3. Debit/credit cards
4. A high rate of interest, although checking is a point or so less than savings accounts

The lack of paper checks may be more a publicity stunt than a true cost savings, although if they succeed in keeping the paper out of customers' hands, it might help keep funds on deposit. Consumers facing a fat tuition bill may be more likely to pull out the checkbook connected to their Citibank account rather than arranging an electronic deduction from e-Orange.

The company, which portrays its savings account as a "companion" to the customer's existing branch-based checking account, is likely not looking to displace the typical 30-transactions-per-month checking account. More likely, they are positioning it more as a money market account with a competitive interest rate along with the convenience of paying a few major bills from it on an infrequent basis.

With ING Direct's core savings product under attack from all sides (see previous FMW articles), it has to look to other avenues of growth. A unique checking account, one that bags free press and a few billion in deposits, makes a lot of sense for a company with a keen grasp of how to make bold, attention-grabbing launches (see note 2).

--JB

For more info:

• AP story on ING Direct: http://sg.biz.yahoo.com/060322/15/3zjzp.html
• Online Banking Report: Building the Amazon.com of Financial Services (#38/39, July 1998)
• Online Banking Report: Virtual Checking Accounts (#50/51, July 1999)

End Notes:
(1) The seeds of that report were published a year earlier in Creating the Amazon.com of Financial Services (OBR#38/39)
(2) The company has entered new markets with clever stunts, such as giving all transit riders a free ride (Washington DC, SF-Bay area); a free tank of gas (LA); coffee bars in prime locations (NYC, Philly); and so on.