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Tuesday, 1 April 2014

ING Group chairman Ralph Hamers presents a new corporate strategy for ING Bank. Big data will be a prominent part of this strategy, in spite of the massive public protests against commercial usage of transaction data.

Today, the freshman CEO of ING Group, Ralph Hamers, presented the corporate strategy for the ING Bank until 2017 at an analysts' meeting in Amsterdam. 

It became clear that big data will be a prominent part of this strategy, in spite of the massive protests against ING’s intention to use transaction data for commercial purposes, a few weeks ago. The Dutch financial newspaper Het Financieele Dagblad reported on this presentation by ING’s CEO Ralph Hamers. Here are the pertinent snips:

Chief Executive Officer Ralph Hamers of ING Group aims strongly at the analysis and usage of customer data. “An intensification of data analysis offers substantial commercial possibilities, for private as well as corporate markets”. This was stated by Hamers on Monday, 31 March 2014, during an analysts’ announcement with respect to the new strategy of ING.

Hamers emphasized that ‘analytical skills’ belong to the core activities of the bank. He sees this as a means for better serving the customer. 

The statements of Hamers may touch a sweetspot in society. Earlier, the director of the 'Private Customers' department Hans Hagenaars made a (more detailed) statement about this topic, by stating that ING wants to make a connection between the payment transaction data of customers and offers from commercial third parties. His statements triggered a big societal and media commotion, due to the sensitivity of this 'big data' subject for customer privacy.

As an example of ‘big data’ usage, Hamers mentioned fighting internet crime. A customer could be warned for instance, when his creditcard is used in the US, while at the same time he spends money by using his bank card elsewhere, in another country.

In Hamers’ new strategy, the emphasis is upon the interest of the customer. “When our customers don’t like our service anymore, they will go to another bank”, according to Hamers. “The consumer is also more and more using mobile banking. The contacts with the bank go more and more through direct channels; not through the bank offices anymore”. This was a ‘revolution’ in Hamers’ opinion.

ING is aiming at innovation within the service to the customer. The importance of excellent ICT systems is only growing. The banking conglomerate therefore appointed a Chief Operating Officer and a Chief Innovation Officer.

What is remarkable, however, is that Hamers didn’t set an increased goal for return-on-equity (ROE). This goal remains at 10% - 13%. Some analysts expected an increase to 11% -14%.

For the people, who want to know more about the corporate strategy of ING Group (actually ING Bank, as the insurance branch will be separated from the bank this summer), I gladly refer to the corporate website of ING (

It becomes clear – for instance through the unchanged ROE-goals and the other unchanged financial goals of the bank – that Ralph Hamers is aiming at a strategy of moderate growth in the coming years. This seems a wise decision, as the growth of the Dutch and European economies still leaves much to be desired, particularly among consumers and Small and Medium Enterprises.

The only worrisome thing in the new strategy is the intended balance sheet growth of 3% per year for ING Bank (not printed in the aforementioned snippet, but available in the remainder of the FD article).

ING Bank already has a balance sheet with a size of almost twice the Gross Domestic Product of The Netherlands (approximately €1100 billion). By expanding it further, the financial risk for the Dutch state (and thus the Dutch taxpayer) will only become bigger and bigger. In that case, the concept ‘too big to fail’ will be back at everyone’s retina, when another banking crisis hits the country.

And then there is the topic of ‘big data’...

People might have thought that the statement of Hans Hagenaars with respect to the usage of ‘big data’ by ING (see the first link) was only a warning shot. 

They also might have thought that the bank had forgotten this idea for a long, long time, after the massive protests against it. 

Unfortunately, these people are wrong. In my March 23, article, I was already afraid of that.

Here is a snippet from this article:

In this case, ING could justifiably state that they were understood falsely by the general public and that it was never their intention to sell the payment transaction data itself. Nevertheless, the damage was done anyway. What people do accept from Facebook and Google, they don’t accept from their bank.

Still, Todd Harrison, the very wise and savvy founder of Minyanville, states occasionally that ‘the more times a certain resistance level is tested, the weaker it gets’. Although Toddo uses this wisdom on support and resistance levels for stock and index rates, it is also true for other kinds of resistance.

Like in the case of the public’s resistance against the usage of big customer data within the banks:
  • Equens tried it and got bitten…
  • ING tried it again, in a slightly different manner, and got bitten too.
  • However, Rabobank tried it also, again in a slightly different manner, and seems to get away with it.
And in one or two years, the Dutch people will have become so familiar with the idea that their 'big data' might be used for commercial purposes, that the banks can refurbish their original ideas and use the real payment transaction data for targeted marketing anyway.

I think that we can safely assume that Ralph Hamers is indeed aiming at this one / two year cool down-period (or even less), before he relaunches his plans for commercial usage of big customer transaction data. Don’t forget that I warned you!

To be frank about Hamers' statement: the example of ‘fighting internet crime’ which he mentions to justify the usage of big data within the bank (see first red and bold paragraph), is quite cheap in my opinion. The kind of controls that Hamers mentions to monitor outlyingsuspect creditcard transactions, are commonly used in 'credit card management systems’ since at least 15 to 20 years ( I worked as a testing consultant for a Dutch credit card issuer/acquirer between 1998 and 2003).

As ING is a credit card issuer (the party that issues the creditcard to its customers) and (probably) an acquirer too (the party which acquires the credit card transactions at merchants), they must already have these controls in place within their creditcard management systems, in my humble opinion. 

Nobody will blame the bank, when it looks for strange (geographical) differences between transactions that take place with the different bank cards, credit cards and internet banking accounts of individual private and corporate customers. Such processes can work fully unattended, without people's interference, until a possible fraud is detected. To put it even stronger, I would be unpleasantly surprised when the bank doesn’t do such monitoring already, as it would mean that ING is leaping 15 years behind. 

This, however, has very little to do with the true, commercial(!) purposes of big data analysis…

And the statement that Hamers is mainly aiming at the interests of the customer (see first red and bold paragraph) with ING’s intended usage of big data, is something that I have some doubts about: 
  • First, the relation between a bank and his private or corporate customer is stronger than many marital relations, as it often lasts for a lifetime.Only two years ago, I finally made an end to a 40-odd year relation with the Rabobank and a 30-odd year relation with the Postbank/ING.

    A relation with a bank is not something that you simply end. The untwining of the complex financial relations, the required software changes to enable internet banking at another bank and the repositioning of numerous direct debit payments to the new bank, are a true pain in the neck.

    Banks know that extremely well and they understand consequently that their customers will stick with them, unless their bank really messes things up…

  • Second, the new found love of the customer for internet banking and mobile banking is a typical chicken-and-egg story. 
    The customer has been litterally pushed away from the bank counters and bank offices, towards the automated teller machines (ATM’s) and internet banking.

    Banks strongly reduced their number of branch offices and – on top of that – also the number of services that such offices could supply: acquiring foreign currencies(!) or precious metals at one’s local bank office or acquiring a private safe at such an office are almost impossible today.

    While the younger generations have no problems whatsoever with mobile bank services and even love the usage of such services very much, the older generation has sometimes been left in the cold. Still, now the customers must do almost everything through mobile and internet banking, they demand the best service and they are entitled to that.

    However, one should never forget that internet and mobile banking have been invented mainly to save personnel and housing expenses for the banks and not so much to help the customer. This was more a favourable side-effect, but definitely not the main purpose.
  • Third, the usage of big data is undoubtedly one of the plans that ING made to enhance the profitability of the bank. Next year, ING will repay the last instalment of the government aid, which it received at the beginning of the credit crisis. Afterwards, it is their goal to pay dividends to their shareholders again.
At this moment, lending money to small businesses is hardly profitable and also the Dutch (and international) mortgage and private loan markets are still a big question mark. Under these – extremely difficult and hazardous – circumstances for lending money to private, SME (small and medium enterprise) and corporate customers, ING grabs every opportunity to make an extra buck. Big data and especially the commercial exploitation of it offers such an opportunity…

This is the current conundrum for banks in a nutshell: their core activities are still quite hazardous and hardly profitable, so in order to survive, the banks have to explore new business models to meet their shareholders’ demands.

One of these business models is the commercial usage of transaction data; whether you like it or not.

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