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tional distribution channels. ING Direct is a straight-to-consumer banking service that has a very focused product line and one that operates at a significantly lower cost structure than competitors (traditional retail banks). ING Direct does not rely on the traditional channels of distribution—physical branches; instead it distributes its products using the Internet and call centers. As a recent Harvard Business School Case showed,1 “ING Direct is able to offer depositors higher interest rates on its savings accounts, dispense with fees and service charges, and still make money by reinvesting depositors’ funds in longer term assets” (Gary, 2004). A research report showed that ING Direct was able to walk away with $17 billion in direct deposits without an extended banking network (Forrester, 2004). In this parable if the large incumbent retail banks were the Goliaths then technology was the sling that ING’s David used to take on the entrenched larger players.

Just as technology releases disruptive change in hitherto stable industries, globalization accelerates that speed of change and amplifies the gains and losses that result. Global free trade agreements and the integration of several regions into trading blocks—such as the European Union (EU), ASEAN, and NAFTA—have opened the financial services markets for several countries to foreign players even as the large established banks and insurance companies must face competition from Asian rivals such as HSBC. If necessity is the mother of invention then competition is the mother of innovation. And competition has unleashed innovations in the financial services industry in mature markets such as the United States and the EU.

A recent research report by the management consulting firm of McKinsey & Company attributed the resurgence of European financial services firms to innovation in a variety of sectors when faced with intense competition from local and foreign players and deregulation (Gary, 2004). The report identifies two different kinds of innovation: the development of new products and services, and the design of innovative ways in which firms produce and deliver these processes. Europe, according to McKinsey & Company, has led innovation in creating derivative products and has also innovated in other product classes such as cash securities. Leading product innovators include BNP Paribas and Société Générale in equity derivatives, and independent advisory houses such as Rothschild. A second kind of innovation—producing and delivering financial services in new ways—including the use of technology in retail financial services and the adoption of global operating models has also resulted in European banks becoming centers of innovation. In other recent research reports, McKinsey & Company identifies that the drivers of success for offshore firms in the Indian and Chinese financial services markets would be the ability to deliver financial services through new and more efficient channels (in India) and to create valuebearing partnerships in China (McKinsey, 2005a,b).


As the case makes clear, ING’s business model is a clear success in that it enjoys supranormal profits.

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