ING Direct and the Success of Play-2-Win Innovation Strategy

By James A Gardner

Organisations that can say - with their hands on their hearts - that they'll make innovation the centrepiece of their competitive response to everything have adopted a Play-2-Win innovation Strategy. ING followed this strategy when it released it's Direct product, disrupting the deposits market in the process.

ING Direct decided to offer an innovative new product - a high interest savings account - reasoning that customers wouldn't mind losing full service access in exchange for the better rates they were getting on their savings. Customers of the account were forced to use direct channels (such as Internet Banking) in order to access their money.

The account was initially introduced in Canada, largely in isolation from the parent company in the Netherlands. Its highly unlikely, in fact, that this new model would ever have been approved by head office, had they known about it, since it was a direct threat to the main business line. Luckily, though, the geographical distance between Canada and Europe meant that the Canadians were able to work "under the radar".

Direct Banking is quite different to the model that's used in traditional banks. Non-direct savings accounts have a full customer experience offer across multiple channels, including the most expensive ones (call centres and branches). For banks, this makes such accounts expensive to operate, and bankers offer low interest rates to compensate.

The concept of the Direct account was immediately very successful, as customers flocked to the product, drawn by the high interest rates. The exodus proved that customers were being over-served by traditional banks, who had invested a great deal of time and effort in competing on the basis of customer experience. The disruption of the traditional savings account market was rapid.

With this success under its belt, the once-doubting ING replicated its model in many other markets. In every case, the competitive landscape for savings is disrupted completely. Banks with high cost bases structured for a competition on customer experience are forced to compete on price, whilst maintaing their high end customer base.

This is very painful for bankers, who are forced to compete on a price basis of lose deposit share altogether. As you'd expect, these bankers do not respond to the news that ING is entering a new market with unbridled joy. - 31960

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