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Money Market vs. Checking Account: How Do They Differ?Inside ING Direct - Why the Low Savings Account Rate
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ON BY Ken Tumin
This Bank Technology News article goes into the history of ING Direct and its CEO, Arkadi Kuhlmann. It gives some insights about why ING is not keeping up with other online banks in terms of rates.
So it looks like Kuhlmann will sacrifice being the leader in rates to preserve better profits. ING Direct is also willing to drop costly customers for the same reason. Here's what the article describes about this policy:
Although ING Direct doesn't have the best rates and is not friendly to difficult customers, it has been successful. It's now the nation's largest standalone internet bank. But it's going to be difficult for ING Direct to continue to grow with banks like EmigrantDirect and HSBC Direct. One option for ING is to offer more products like checking accounts. Banks often use checking accounts as a way to build relationships that keep customers from leaving. However, Kuhlmann has seen more negatives than positives. Here's Kuhlmann's opinion about checking accounts:
ING Direct may have one of the most fancy online bank websites, but that's not going to keep the customers. I hope ING Direct will at least try to keep within 0.25% of the best no-minimum saving account rates.
Continued Fed rate hikes are taking a toll. In the second quarter, ING Direct earned $60.3 million-not much for a thrift its size-and had a razor-thin margin of 1.33 percent, down 62 basis points from a year ago. Kuhlmann concedes it will be difficult to maintain both profits and growth in this environment, and says he's inclined to pursue the latter.
So it looks like Kuhlmann will sacrifice being the leader in rates to preserve better profits. ING Direct is also willing to drop costly customers for the same reason. Here's what the article describes about this policy:
To promote customer homogeneity and keep costs down, ING Direct won't hesitate to "fire" customers who demand too much.
...
Kuhlmann says the company "weeds out" up to five percent of its customers each month, for violations like asking for statements via mail, contacting the call-center too often or demanding a better deal because they have a large sum of money to deposit.
Although ING Direct doesn't have the best rates and is not friendly to difficult customers, it has been successful. It's now the nation's largest standalone internet bank. But it's going to be difficult for ING Direct to continue to grow with banks like EmigrantDirect and HSBC Direct. One option for ING is to offer more products like checking accounts. Banks often use checking accounts as a way to build relationships that keep customers from leaving. However, Kuhlmann has seen more negatives than positives. Here's Kuhlmann's opinion about checking accounts:
I don't know how to create a good value proposition and make money with checking. It's the no. 1 area where you destroy goodwill from customers. Even if you offer free checking, consumers don't believe it. You ding them with late charges and fees and holds. ... They always see it as a bait-and-switch.
ING Direct may have one of the most fancy online bank websites, but that's not going to keep the customers. I hope ING Direct will at least try to keep within 0.25% of the best no-minimum saving account rates.