Illustration: Britt Spencer
There isn’t any hiding the fervour with which Ralph Hamers has pursued digitalization, since his promotion to ING’s chief government 5 years in the past.
He has hammered dwelling the Dutch financial institution’s internet-era benefits, making it stand out from the pack of European banks nonetheless struggling to discover a place within the post-crisis world. From being compelled to promote insurer NN Group as a situation of its 2008 bailout, now it may well even ponder Europe’s most vital financial institution acquisition for greater than a decade: Commerzbank.
How is it then that ING nonetheless trades at a reduction to ebook worth of about 25%, regardless that its return on fairness is healthier than some other Europe-focused financial institution of its dimension, at about 11%? Is Hamers making a elementary strategic error, regardless of the expertise increase?
There’s, it appears, remarkably little enthusiasm amongst friends for Hamers’ grandiose transformation challenge. Launched in 2016 and now as a result of run till 2022 or later, that is probably the boldest challenge of its sort in European banking at the moment and it may present a mannequin for the sector for many years to come back. However has Hamers’ want to be the primary to comprehend the potential of expertise gone too far?
The thought is more durable to implement than to elucidate. He’s making an attempt to run his numerous country-level banks collectively to a larger diploma than the trade has tried to do previously. Given the fragmented state construction in Europe, this could carry an vital reply to the urgent query that banks right here have lengthy confronted, particularly: how carefully can they combine and thereby acquire synergies from cross-border retail operations?
Over the past couple of years ING has began the migration of its Belgian operations onto its lately upgraded Dutch IT system, making a single platform, known as Unite, for its developed-market incumbent banks. On the similar time, it’s integrating a few of its on-line retail banks elsewhere in Europe – within the Czech Republic, France and Italy – round its Spanish operation, known as Mannequin Financial institution. It has additionally upgraded its techniques in Germany.
The subsequent step, within the 2020s, shall be to make these three into one.
Different banks give the method combined critiques. It doesn’t sound like a lot of them will observe swimsuit quickly. BNP Paribas, whose enterprise additionally straddles numerous international locations in northwest Europe, is actually not planning on doing the identical factor.
Higher integration between international locations is about greater than IT techniques. It’s, if something, extra about individuals and about avoiding a number of country-level product and operational roles that do the identical factor.
However some rivals characterize Hamers’ challenge as an pointless waste of money and time that has finished harm to the consumer franchise.
“It appears nice on a PowerPoint presentation,” says the pinnacle of 1 peer establishment in northwest Europe, who thinks the challenge has failed.
Nordea is the opposite large European financial institution lately to have made an identical transfer when it comes to its core-banking techniques: ripping out the previous techniques for its banks within the 4 essential Nordic markets to interchange them with a single and fully new platform.
However in late June, in what is perhaps a foul omen for Hamers, Nordea stated its chief government, Casper von Koskull, would retire subsequent 12 months, when he’s 60. The information comes amid disappointing monetary outcomes at Nordea and investor impatience with the hoped-for monetary advantages of its core-banking overhaul.
As a financial institution, if I’ve cross-border scalability, I don’t want entry to those large markets anymore. As soon as I’ve Mannequin Financial institution up and working in Spain, I can open up in any nation in Europe
– Ralph Hamers
Even BBVA – maybe the closest to ING when it comes to positioning itself as a type of monetary expertise firm – remains to be taking a extra wait-and-see method.
“The way in which we’re doing it, it’s not a lot migrating the again finish however guaranteeing that the developments that now we have are modular and reusable throughout geographies, even when the native again ends stay,” BBVA’s government chairman, Carlos Torres Vila, tells Euromoney.
Nonetheless, there’s nonetheless admiration within the trade for Hamers’ efforts. Clearly, ING will not be the one financial institution that thinks it may well construct not only a European however a worldwide enterprise by way of simply replicable client-facing digital expertise.
The worldwide potential of digital banking underpins BBVA’s technique simply as a lot as it’s the foundation for Hamers’ digital transformation plan.
“The routes to get there are totally different, however you can’t stand nonetheless,” says Torres Vila. “Ultimately, we can even transfer the again ends, I’ve little doubt. I’ve little doubt that on the finish state of this, there shall be one international infrastructure serving the world.”
Because of being higher capable of reuse the essential constructing blocks from elsewhere within the group, it took ING simply 9 months to arrange for the launch earlier this 12 months of a brand new cellular financial institution within the Philippines, in line with Hamers. Now it hopes for a equally industrialized rollout in China, the place ING is growing a digital banking three way partnership with Financial institution of Beijing, during which it holds a 13% stake.
Hamers doesn’t low cost the potential of re-entering the US retail market sooner or later, which it exited as a situation of its 2008 bailout, though he says for now it will be extra seemingly as an account aggregator, given the comparatively excessive regulatory boundaries to coming into the US as a financial institution.
“You may problem the US market; we did it,” he says, referring to the pre-2008 enterprise.
If ING has actually solved the conundrum of cross-border retail banking, nevertheless, it might need additionally solved the way to construct a worldwide financial institution targeted firstly on the political mosaic of its dwelling continent.
“As a financial institution, if I’ve cross-border scalability, I don’t want entry to those large markets anymore,” Hamers tells Euromoney, in his workplace in Amsterdam. “As soon as I’ve Mannequin Financial institution up and working in Spain, I can open up in any nation in Europe.”
ING’s chief government will naturally have a unique view from rivals on the extent to which its Unite challenge – additionally known as Orange Bridge – has damage industrial momentum in Belgium. Figures from its annual report counsel its Belgian unit, which additionally consists of Luxembourg, struggled in 2018, with prices rising and revenues down. There has even been some concern within the native press that the Benelux migration may end result within the type of chaos that TSB clients skilled within the UK after its separation from Lloyds.
After deteriorating in 2017, ING group’s effectivity improved in 2018, reaching an underlying cost-to-income ratio of just below 55%, partly because of decrease prices within the Netherlands. However the departure of Roland Boekhout, who beforehand oversaw the Unite challenge, might be one other problem, as Hamers is taking on direct oversight till he finds a alternative (Boekhout is leaving to run Commerzbank’s company shoppers franchise).
Hamers says financial coverage is the principle motive why ING’s shares have lately tended to commerce under these of friends with related returns, even when a Dutch fantastic and an Italian ban for cash laundering haven’t helped.
“The principle explanatory issue is that we’re a predominantly eurozone financial institution,” he says. “The financial outlook for the eurozone as a complete has deteriorated over the previous 12 months.
“Different banks are extra in non-public banking; they’re extra in asset administration. The continuation of their revenue stream on the again of a few of these companies which can be extra price income-generated is much less influenced by a low-for-longer fee surroundings than what now we have.”
However the operational overhaul is, crucially, a giant a part of how ING will develop and diversify its revenue. Low or non-existent department prices have meant the financial institution can supply low charges to draw clients, however this has accentuated a reliance on curiosity revenue.
Hamers consequently believes the transformation to construct cross-border platforms is essential in order that the financial institution can ship extra homogenous merchandise – some not even strictly monetary, incomes charges in addition to curiosity – to shoppers in numerous international locations and in an agile method.
Total, Hamers’ pondering is that as banking turns into extra commoditized, profitable corporations should differentiate themselves by their person expertise. A single international platform ought to then be an environment friendly technique of carrying a extra diverse and modern suite of providers. It ought to make the financial institution and its portals extra valued by shoppers and by high-quality third-party product suppliers, which can even be searching for a easy and well-recognized single level of entry to mass-market cross-border distribution.
That’s the idea not less than.
By the tip of the 12 months we could have virtually 20 million clients throughout these three totally different international locations interacting with ING in precisely the identical manner, with precisely the identical model. It may be finished
– Ralph Hamers
On a extra prosaic degree, sympathetic analysts reminiscent of Jean-Pierre Lambert of KBW say that the financial institution could make vital price financial savings because it centralizes its operations, finally obviating the necessity for duplicate company centre-type roles between particular person international locations, reminiscent of Belgium and the Netherlands, for instance.
Berenberg provides that even on the degree of IT spending, the decommissioning of the previous Postbank’s techniques minimize 10% from ING’s operational prices within the Netherlands in 2016. The same switch – just like the migration deliberate this 12 months of the techniques of File Financial institution, which ING beforehand ran as a retail subsidiary in Belgium, to ING Belgium – may subsequently cut back group prices by about 2%.
Hamers denies that his transformation challenge has been harder and riskier than he anticipated. Even so, he offers a touch of how the financial institution has needed to row again on the challenge somewhat, not less than by having much less of a ‘large bang’ and extra of a slower and phased migration of consumer accounts, protecting components of the Belgian techniques working for longer.
“These are large programmes,” he says. “They want fairly some preparation. Particularly, within the Netherlands and Belgium, there’s quite a lot of legacy in techniques, in the way in which we work, in numerous worth propositions to clients. What now we have determined is that somewhat than going for the complete integration without delay, we need to ensure that [firstly] that the shoppers begin to get pleasure from one and the identical digital interplay.”
He’s eager to point out how quickly ING can standardize the entrance workplace, or not less than its app, within the Netherlands, Germany and now Belgium.
“The entire concept that we had two-and-a-half years in the past – saying: ‘Guys, if Uber can cope with shoppers throughout the globe in the identical manner; if Fb can try this; if they’ve the identical interplay with shoppers, whatever the nation the place they’re, however for the language, we should always give you the chance to take action as effectively, so let’s transfer from 13 totally different experiences to at least one’ – that is occurring as we communicate.”
He provides: “By the tip of the 12 months we could have virtually 20 million clients throughout these three totally different international locations interacting with ING in precisely the identical manner, with precisely the identical model. It may be finished.”
How rather more might be finished to homogenize its worldwide techniques and providers sooner or later?
“The app is the start line,” he says. “You may go for 100% harmonization of the again finish – just like the ledgers and the account system – and the entrance finish; in different phrases, the way in which you ship, the way in which you work together and the way in which you present your data… In present accounts, you may have 95% standardization and in financial savings accounts it’s most likely 90% standardization, aside from one or two parts which can be extra fiscal-driven in a single nation versus the opposite.”
Different European banks are evidently paying shut consideration to Hamers’ expertise, even when they could criticize it. BNP Paribas is probably crucial of those. The 2 compete head on in Belgium, because of the French group’s post-crisis acquisition of Fortis.
BNP Paribas additionally harbours even perhaps larger continental ambitions as a common lender; these days it has taken a leaf out of ING’s ebook when it comes to its larger concentrate on digital channels, albeit utilizing a larger number of manufacturers. However chief government Jean-Laurent Bonnafé has taken a really totally different method to cross-border integration than Hamers.
He’s eager to combine extra carefully BNP Paribas’ product factories, reminiscent of leasing, shopper finance and glued revenue, however to maintain the home retail banks and their core IT techniques separate from each other. That is like most different cross-border banks in Europe, in reality.
BNP Paribas will most likely not observe Hamers’ lead as its administration believes Europe’s regulatory frameworks stay too diverse (for instance, even IFRS accounting requirements differ between France and Belgium). Quite, the financial institution hopes to seek out price financial savings by pooling issues reminiscent of buyer verification and components of its funds and capital markets operations on platforms shared with different corporations.
If the query is, the place will we be constructing our nucleus of actions, it is going to be in many various locations
– Ralph Hamers
Nonetheless Hamers, like Bonnafé, is reasonable in regards to the limits of bringing collectively country-level retail operations, particularly mortgages.
“Mortgages are essentially the most troublesome product to standardize, and I don’t assume it’ll ever occur,” he says. “You may standardize a few of the elements of the product, however I don’t assume you will get past 60% or 65% standardization in mortgages, as a result of there are all the time authorized points. For instance, the authorized idea of a mortgage exists in Holland however not in Belgium.
“Within the Netherlands, mortgages usually have increased loan-to-value ratios and they’re going to keep increased for a very long time, because the curiosity prices are tax-deductible. In Belgium, they’re not,” he provides.
“All that determines product options – and that can all the time be one thing native. The way in which you show the cash within the app and so forth, all that may be the identical. However for instance, a few of these steps it’s a must to put within the course of, reminiscent of going to the notary, will stay totally different. In some international locations you don’t need to go to the notary and in some international locations there’s rather more price round that.”
Now ING has taken the step of integrating its most established markets, Belgium and the Netherlands, the following step of integrating that platform with the challenger platforms in Germany and Spain might be simpler, after the Unite challenge is accomplished in 2022 or 2023.
“We stated earlier than that if we need to combine all these international locations, now we have to work in an identical manner in all places,” Hamers argues. “On the IT aspect, 45% of our assets throughout the globe already work on cross-border initiatives. In the event that they develop an account-opening course of or a digital identification course of or a money-transfer course of, everybody else can simply take it off the shelf and use it.”
The very totally different profiles of those platforms – initially branch-based within the Netherlands and Belgium however successfully branch-free in international locations reminiscent of Spain and Germany – will make this subsequent stage more durable. However Hamers has already taken the courageous transfer of standing up in entrance of Belgian workers to elucidate the rationale for eliminating a lot of their roles. The merger of File Financial institution, furthermore, concerned closing half of ING-owned branches in Belgium.
“Will probably be simpler as a result of the inner tradition, the exterior expectations of shoppers, are converging in a short time,” he says of the following stage of the mixing challenge. “Folks see it as a really logical subsequent step.”
He provides: “Prior to now 12 months and a half or two years, particularly between Holland and Belgium, the groups have been fully built-in. They’ve cross-border tribes and so they work in the identical manner, so there’s one particular person liable for a particular product – like investments, funds or small and medium-sized enterprise lending – throughout a unique nation. That’s been finished.”
How ING’s transformation may facilitate a merger
Ralph Hamers, ING’s chief government, is set to be a contender for Commerzbank, ought to the tip of its merger discussions with Deutsche Financial institution earlier this 12 months end in a takeover battle. ING’s €40 billion market capitalization places it in a greater place than the opposite private-sector financial institution that already has a big German operation, UniCredit (€25 billion).
ING has already built a base of some eight million clients in Germany, regardless of an virtually full lack of branches, and it’s making an attempt to maneuver past the internet-based financial savings accounts that made its identify exterior the Netherlands.
“We’d be taking a look at M&A if the expertise may assist us in growing a differentiating consumer expertise, or if we may purchase a portfolio or a workforce of individuals to provide us the credit score abilities we set out eager to develop in small and medium-sized enterprise banking in Spain and in Germany, and what have you ever – which isn’t simple to develop from scratch,” Hamers tells Euromoney.
Whereas he says the technique is primarily natural, he provides that an acquisition may make sure the financial institution nonetheless enjoys what he calls a “sustainable share” in a given market.
“If consolidation is going on in a market during which we’re a big financial institution, you’ve all the time acquired to take a look at how that impacts your place,” he says.
As in any merger like this, nevertheless, the query of the placement of the headquarters of the mixed group shall be essential. It could be according to the German regulator’s protectionist repute – and the German authorities nonetheless holds 15% of Commerzbank – if it have been to push for Frankfurt to be any merged financial institution’s headquarters, even when Commerz is the junior accomplice.
UniCredit chief government Jean Pierre Mustier would, in any case, be delighted to be comparatively free from Italian sovereign threat, regardless of the basically poor profitability of German banking. That stated it’s unclear whether or not the Dutch or Italian authorities can be happier for the headquarters of their respective largest banks to maneuver to Germany.
Maybe Dutch politicians’ anger at makes an attempt to lift Hamers’ wage final 12 months will make him much less averse to a transfer to Frankfurt. Nonetheless, ING is constructing a headquarters within the type of a leafy new campus in southeast Amsterdam. It can most likely have a really totally different ambiance to the Commerz skyscraper within the centre of Frankfurt’s monetary district, though the latest transfer of ING’s Boekhout to run Commerzbank’s company shoppers enterprise suggests there could also be some cultural match.
Even with out Commerzbank, nevertheless, ING will face extra questions on its headquarters, because it strikes in the direction of the following stage of its transformation plan: merging its personal newly built-in incumbent banks (primarily based within the Netherlands) with its challenger banks (to be primarily based in Madrid) and its German financial institution. Will the only hub that survives be in Amsterdam, Madrid or Frankfurt?
Hamers’ response is that it is going to be in all places and nowhere – maybe suggesting that if regulators needed the formal headquarters to be in Germany, it might be simpler.
“Let’s take a look at Madrid,” he says. “We’re attracting the expertise there to construct a multi-country direct financial institution. However every little thing that has to do with the cloud is finished from Romania and Poland, even for that challenge… The elements that they use to develop the app could come from what they’ve already on the shelf within the Netherlands, so it’s very troublesome to say: ‘That’s the place our individuals sit.’
“The individuals in Madrid are additionally growing issues – account opening, consumer identification, cheque verification – that the Philippines is now utilizing. The system itself, the servers, are within the cloud and the software program on the providers is developed somewhere else. Every part shall be roughly digital.”
He concludes: “If the query is, the place will we be constructing our nucleus of actions, it is going to be in many various locations.
“We want it to be in many various locations as a result of we need to have the proper expertise. From that perspective, we see Madrid rising and we see Amsterdam rising, with the brand new campus we’re opening right here in the direction of the tip of the 12 months. We see Germany rising, Poland rising, Romania and the Philippines.”