Post on 05-Jun-2018
A Study of Global Personal Internet Banking and How ING Direct Remains Competitive
Sheri Stroop University of Maryland University College
IMAN601 Original Writing: 11/15/2012
Updated 7/19/2014
Source: http://www.index2day.com
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Table of Contents
Table of Contents ................................................................................................................... 2
Executive Summary .............................................................................................................. 4
Section I: Commercial Banking Industry Structure ................................................ 5
Porter’s Five Forces Analysis: Commercial Internet Banking .................... 6
Intensity of Rivalry in Personal Internet Banking ............................................................ 6
Potential for Entry into the Personal Internet Banking Industry .............................. 7
Substitute Products and Services to the Personal Internet Banking Industry ..... 8
Strength of Suppliers in the Personal Internet Banking Industry ............................. 9
Strength of Buyers in the Personal Internet Banking Industry ............................... 10
Overall Attractiveness ................................................................................................................ 10
Strategic Group Mapping ......................................................................................... 11
Section II: Evolution of Commercial Internet Banking ...................................... 13
Industry Trends and Outlook ................................................................................ 13
PESTL Analysis-Expansion into Chile ................................................................ 14
Section III: Strategy Formulation ................................................................................ 16
IV. Recommendations and Conclusions ................................................................... 17
Update 2014 ......................................................................................................................... 18
References ............................................................................................................................. 19
Appendix A ............................................................................................................................ 22
Strategic Group Map .................................................................................................. 23
Appendix B ............................................................................................................................ 24
SWOT Analysis ............................................................................................................. 24
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Appendix C............................................................................................................................. 25
PESTL Analysis: Chile ................................................................................................ 25
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Executive Summary
This research paper discusses how ING Direct differentiates itself from other key
players in the global commercial banking industry. Specific attention will be paid to ING
Direct’s online banking framework as compared to other banks in the industry and how this
impacts ING Direct’s competitiveness. In addition, the structure of the online commercial
banking industry is explored, including how each of Porter’s five forces impacts the
attractiveness of profitability in this industry.
The structure of the online commercial banking industry can be described as ten
distinct strategic groups, with three of those groups making up almost 70% of the market
share within the industry. ING Direct makes up a very small piece of the pie at less than 1%
of the global market share. However, this fact alone doesn’t preclude ING Direct from being a
player in the global commercial banking industry, as it is unique in its strategy and reach as
compared to other online banks.
Porter’s five forces analysis is applied to the online commercial banking industry,
with the overall results pointing to an unattractive environment for profits in the industry.
In response to the unattractive business environment, ING Direct must take steps to
strategically insulate itself from the forces in the industry in order to be profitable.
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Section I: Commercial Banking Industry Structure
The commercial banking industry is defined by the United States Census Bureau as
“establishments primarily engaged in accepting demand and other deposits and making
commercial, industrial, and consumer loans. Commercial banks and branches of foreign
banks are included in this industry” (NAICS 5211, 2007). The commercial banking industry,
specifically internet banks focused on individual consumer accounts, is a growing industry in
today’s instant gratification society. As the internet continues to grow and become a
mainstay in business and social life, the internet banking industry is becoming more popular
with consumers. Further, the internet has dissolved borders in this industry, opening up
market threats from global competitors.
The global commercial internet banking industry is made up of long established,
traditional brick and mortar banks that have expanded online and online only firms that offer
a variety of personal banking products such as high interest checking and savings accounts,
money market accounts, online certificates of deposit, low cost investment options, and
more. In addition, hybrid banks are also included in this industry, which have a traditional
brick and mortar banking relationship and also have what is called a ‘Direct’ division that
operates strictly online for more technology savvy customers. Competition in the online
commercial banking industry is intense, as consumers have come to expect high interest
rates, low or no fees and a variety of products to choose from, and the firms are delivering.
One cannot pick up a magazine, watch television or surf the internet without coming across
an ad for one of these online banks. The impact from all of these business forces and more is
analyzed in the next section using Porter’s Five Forces.
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Porter’s Five Forces Analysis: Commercial Internet Banking
Porter’s model compares five common forces that affect the outcome of most
businesses in the market place: rivalry among competitors, barriers to entry in the industry,
potential substitutes offered in the market, strength of suppliers to the industry, and strength
of buyers of the industry’s products or services (Bartlett & Beamish, 2011). Rivalry among
competitors is a force that considers how fierce the competition is within an industry to
maintain or gain market position. An industry’s barriers to entry are obstacles to entering
into a particular industry. Potential substitutes are products or services that could replace
what is being offered by different firms. The strength of suppliers is concerned with how
many suppliers an industry has to choose from and how much influence suppliers have in the
industry. The strength of buyers looks at the bargaining power of purchasers of an industry’s
products or services and how much input buyers have into the direction of an industry.
Intensity of Rivalry in Personal Internet Banking
There is fierce rivalry amongst competitors within the personal internet banking
industry, both in the United States and abroad. Some of the key players include ING Direct,
Ally Bank, Charles Schwab, Sallie Mae, FNBO Direct and HSBC Direct. All of these firms offer a
variety of products through their online banking services, with a focus on high interest
returns and low or no associated banking fees (http://www.bankrate.com). The intensity of
the rivalry can be seen in various offers that the firms use to woo away customers from other
banks, such as ING Direct’s $50 credit for opening and using its checking accounts
(http://www.INGDirect.com) and Sallie Mae’s exceptionally high rate of return for savings
accounts of more than .10% over its competitors (http://www.bankrate.com). There is also
a high level of advertising in this industry, which also contributes to strong rivalry.
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Furthermore, it costs buyers nothing to switch firms in this industry, as a simple few mouse
clicks can get them a new account, adding to the intensity of the competition. Online banking
in countries outside the United States poses limited rivalry, as it is “mostly limited to online
brokerage firms and internet divisions of traditional financial institutions”
(http://www.fincen.gov).
Overall, the intensity of the rivalry in the banking industry makes it unattractive from
a profit earning standpoint. The closeness of the pricing in this industry leaves little margin
for profits, as in order to attract customers, banks must be competitive in both their interest
rates and fees. In addition, the ease with which consumers can switch banks can cause
uncertainty in the longevity of a consumer’s accounts.
Potential for Entry into the Personal Internet Banking Industry
Due to the sheer number of existing brick and mortar commercial banks, there is a
sizable pool of entry candidates into the personal internet banking industry. Many brick and
mortar establishments have already taken advantage of the internet boom by offering online
banking options. There are some limitations to brick and mortar banks that attempt to
compete in the online personal banking scene, as overhead costs for a bank that maintains
both an online and physical presence are much higher than they are for an online only bank.
Brick and mortar banks that have an online presence generally cannot compete with online
only banks, as interest rates for savings and checking accounts with a brick and mortar bank
are generally much lower than they are for an online only bank, while fees tend to be higher
(http://www.bankrate.com).
Other potential entrants into the industry would be existing online credit and loan
firms, mortgage companies, and insurance companies, who have typically dual branded their
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products with those of the banking industry. There are some players in this industry, such as
Sallie Mae and American Express that have managed to break into the online banking
industry and compete with their banking counterparts. However, other multinational firms,
such as Wells Fargo and Citibank have an online presence, but have not set themselves apart
in two out of three main competitive influences in this industry – interest yield and fees
assessed for use (Devlin & Gerrard, 2004). The potential for new entrepreneurs to enter into
this industry is much lower, as there are many federal regulations surrounding this industry,
such as the more than 400 new regulations introduced by the Dodd-Frank Act of 2010
(Public Law 111-203). Therefore, with high barriers to entry, the profit potential from this
force is attractive.
Substitute Products and Services to the Personal Internet Banking Industry
The only real alternatives to online bank accounts are traditional checking and
savings accounts at a brick and mortar establishment, or not using a bank at all. Though
traditional brick and mortar relationship banks have been the personal banking method of
choice to consumers in the past, the improvement of internet security in recent years and the
growing popularity of the internet and mobile apps have improved the attractiveness of
online personal banking. The threat of substitution from brick and mortar establishments is
high, as online only banks have to gain and keep the trust and security of consumers that
have banked at these long established firms. In addition, a 2011 Pew survey found that
“adults aged 65 and older are significantly less likely than other age groups” to do any
banking online (Smith & Zickuhr, p.12).
On the other hand, younger consumers that have grown up in the information age are
highly mobile and more open to internet banking technology. A survey conducted by the
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Knowledge Networks on behalf of the Board of the Federal Reserve in January of 2012 found
that 68% of participants had used internet banking in the last 12 months, with 50% of those
respondents being under the age of 30 (Gross, Hogarth & Schmeiser, survey, March 2012).
However, with only 43% of internet users banking online, there is still a lot of room for
growth in this industry (Beier & Fox, 2006). It is this potential for growth in the younger
consumers that diminishes the force of substitutes in this industry, which is attractive for
profits.
Strength of Suppliers in the Personal Internet Banking Industry
There are many suppliers to the commercial banking industry, some required in
order for a bank to open. In the United States, banks rely on the investment of shareholders
to supply the money used to finance bank activities, but the Office of the Comptroller of
Currency (OCC) has to approve national bank charters. Banks “must obtain approval for
deposit insurance from the Federal Deposit Insurance Corporation (FDIC), [with] additional
approvals…required from the Federal Reserve” (http://www.federalreserve.gov). Since
national banks in the United States are required to obtain these approvals, the suppliers to
U.S. banks have strong influence in the industry, with no alternatives. Banks operating in
other countries, such as Europe have similar government agencies to contend with, such as
the European Banking Authority in Europe (http://www.eba.europa.eu).
Another important internet banking supplier is the IT firms that supply the networks
and provide the hardware and software for online banks. These firms have the potential to
make or break a bank’s business and reputation, as the level of security they provide and the
reliability of the hardware and software that runs the online banking platforms are
important to keeping online banking customers. Therefore, with the Comptroller, the FDIC
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and Federal Reserve having total control of the banking industry, and IT firms having control
over the security and reputation of the banks, the strength of suppliers in this industry makes
the potential for profits unattractive.
Strength of Buyers in the Personal Internet Banking Industry
Online banks face strong buyer bargaining power. Consumers incur no costs when
switching online banks and may have multiple accounts with multiple online banks,
increasing their knowledge of trends and changes in the industry. This makes it more likely
that a customer will switch banks if a more attractive offer arises. In addition, patrons who
deposit large sums of money in banks have great influence over the terms and conditions of
those deposits, as there is always the threat of taking their business (and their money)
elsewhere. It is the exclusive power of the buyer which makes this force unattractive to
profits.
Overall Attractiveness
There are many factors that influence the personal internet banking industry. Based
on the results of Porter’s Five Forces Analysis, one can conclude that the competitive
environment for the personal internet banking industry is unattractive in terms of earning
good profits. Rivalry in the banking industry is fierce, while competition from tradition brick
and mortar bank institutions is a definite threat in the realm of substitution, as traditional
banks have a relationship aspect to them that online only banks can’t compete with, even
though there is potential for growth with younger bankers. Both suppliers and buyers in the
online bank industry have strong bargaining power, leaving online banks struggling to keep
up with regulations and demands from consumers. In order to cope with the five forces
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impacting the online banking industry, companies like ING Direct need to develop a strategy
to insulate themselves against these forces and remain profitable.
Strategic Group Mapping
In the commercial internet banking industry, focus must be put on how different
companies in this industry relate to one another and how ING can compete with and/or
cooperate with the other companies. According to a study conducted by Devlin and Gerrard
in 2004, consumers choose retail banks based on the fees they charge and the number of
products that the banks provide (Devlin & Gerrard, 2004). In other words, consumers want
to know what a bank has to offer for the least cost to the consumer.
An analysis of the commercial internet banking industry based on the study by Devlin
and Gerrard turned up ten distinct strategic groups, with three of those groups making up
almost 70% of the market share in the global industry. The other 30% of the groups are
more specialized in the products that are offered. As evidenced by the strategic group map
(see Appendix A), ING Direct is in a strategic group on its own. It offers more products than
other low fee banks, and charges zero fees for all of its personal banking products. Mobility
barriers from group to group in the banking industry can only be overcome through mergers
and acquisitions by larger banking firms. ING Direct has some distinct advantages over other
firms in the online banking industry. For example, ING has established online banking
throughout the world providing the same types of products across borders. This is
significant because, although other banks have an online presence, ING is the only online
bank where an online checking or savings account can be opened in every country in which it
does business. Other ‘multinational’ banks offer only limited services in countries other than
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their home country, which puts ING far ahead of the competition in terms of its company’s
reach.
SWOT Analysis
A SWOT (strengths, weaknesses, opportunities and threats) analysis (see Appendix B) of ING
Direct shows that ING is heavy on strengths and opportunities and low on weaknesses and
threats, which is a great place for a company to be. One of ING’s most important strengths is
its ability to appeal to the average consumer. Most banks go after customers that have a lot
of money to invest, but ING’s marketing strategies show that it cares about the average saver
(Swibel). For example, ING opened up a series of ING Direct Cafes to bring a relationship
banking aspect to the online banking business. For the cost of a $2 cup of coffee, customers
have access to the free internet the café provides, while it inundates the customers with
suggestions to open up a savings account and provides the tools to do so right there in the
café (Neier, Tarter, & Zahay-Blatz, 2011). Another tactic the company uses is to entice
consumers to open accounts with various rewards. Perhaps ING’s greatest appeal to the
average customer is that customers of ING Direct incur zero fees for all of the online personal
banking services it provides. There are no overdraft fees, no minimum balance fees, no
maintenance fees, and no hidden fees.
The SWOT analysis also shows opportunities for ING Direct. With online banking
trending toward an increase in mobile banking, ING has opportunities to expand in this area
and is already leading the pack with its CheckMateSM mobile app. This app allows bankers to
simply take a picture of a check to deposit it, allowing fast and easy access to their money
(http://www.ingdirect.com/deposits/mobile.html). The additional opportunity in mobile
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banking is expansion into other mobile markets, as this app is currently only available on
Android and iPhone operating systems.
The only real weakness for ING Direct is the tiny market share that its strategic group
has compared to other strategic groups in the industry. However, compared to other banks
that offer similar services with similar very low or no fee models, this isn’t troubling for the
online pioneer, as it has double the market share of strategic groups that offer the most
similar ranges of products. In addition, this weakness has actually been absorbed by
CapitalOne in the U.S. market, which bought ING Direct’s US banking company in 2011
(Barth, 2011). With CapitalOne’s purchase of ING Direct, ING now has the backing of big
money behind its ingenuity, insulating it somewhat from the threat of other giants in the U.S.
market potentially taking on its business model.
Section II: Evolution of Commercial Internet Banking
Industry Trends and Outlook
The online banking industry has quite a few trends that ING Direct should watch for
in the coming decade to maintain its profitability, though some of those trends are being set
by ING itself. One of the biggest trends in the online banking industry that is sure to
continue for many years to come is the increase in mobile internet banking (Tripathi, 2012).
For the next generation, for whom cell phones have always been the norm, this will be an
expected feature for any global banks that want to remain in the industry. Another growing
trend, especially for U.S. consumers is the demand for “expedited online bill payments”
(Munger, 2009). Globally, as developing countries continue to adopt the concept of online
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banking, and infrastructure to support online systems increases, more and more developing
countries will see their banks go online.
PESTL Analysis-Expansion into Chile
One of the few countries in the world where ING Direct does not currently have
personal internet banking is in the country of Chile. A PESTL (political, economic, socio-
cultural, technological, legal) analysis (see Appendix C) of the country of Chile shows the
potential for expansion of ING’s business into this country. Chile has been explored by many
companies in recent years as a destination for expansion due to its business-friendly political
environment and expanding economy. The country has had a stable political environment
for more than two decades, with an open economy and little bureaucracy to get in the way of
businesses that wish to move to Chile. Gross domestic product in Chile is expected to grow at
a rate of 6.2% over the next year, with an average of 4.2% for the following 3 years. This is
higher than the global average of around 3%, making Chile a prime candidate for new
business. In addition, Chileans value higher education, with 1/3 of its population attending
post-primary universities (Reininger, 2010).
Trends for Chile show rapid adoption of technology by younger generations, making it
a prime location for a technology based internet banking firm such as ING. Institutions of
higher learning are implementing e-learning environments and technology in the classroom
which has a real potential to translate into further technology adoption in other areas of
student life. There is already network infrastructure in place in Chile and younger
generations are more likely than not to use the internet on a regular basis (Alshare &
Alkhateeb, 2008). Furthermore, Chile has the largest adoption rate of internet banking in
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Latin America, with over 34% of their people having used internet banking
(http://www.thepaypers.com, 2011).
As a result of the analysis of global trends in banking, particularly in the country of
Chile, where ING could look next for potential expansion, the prospects look good for the
continued growth of the internet and mobile banking industry on a global scale. This is
particularly true for a pioneer such as ING Direct, who when expanding into emerging
markets could have the edge over its competitors because it appeals to the average citizen.
Trends toward increases in mobile banking in particular could mean growth for companies
like ING that have jumped ahead of their competitors with innovative technology for check
cashing and other mobile banking apps.
Current trends in internet banking will have significant impacts to industry forces and
structure. More power will be given to buyers, as buyer demand for better product
technology and innovation is increasing. This increase grants more power to the banking
industry’s IT suppliers as well, as banks will have to rely on the IT industry to provide the
technology demanded quickly, efficiently and securely. Though this will cause a decrease in
attractiveness for profits from buyer and supplier forces, it also paves the way to widen the
gap between internet banks and their brick and mortar counterparts, decreasing the impact
of this substitution threat and increasing the attractiveness of this force for profitability. The
structure of the banking industry is likely to shift over the next 10 years to be more
dominated by internet bankers and less so by brick and mortar banks. The additional
reliance on technology will also increase barriers to entry into the industry, making this force
more attractive, while intensity of rivalry isn’t predicted to change much.
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Section III: Strategy Formulation
ING’s mission statement and current strategy are all about its customers: “…to
deliver financial products and services in the way that our customers want them delivered:
with exemplary service, convenience and at competitive prices” (http://www.ing.com,
2012). ING intends to strengthen existing ING Direct offices by evolving them into “more
mature full-service banking models” (http://www.ing.com, 2012). This strategy shows that
ING is not only aware of the force of substitution by its brick and mortar competitors, but
that the company is taking actions to insulate itself from this competitive force by taking on
the substitute product as well.
As a company, ING needs to continue to take steps to offset the fierce rivalry in the
online banking industry. One of the ways that ING intends to do this is to separate its
banking and insurance businesses so that each can better focus on its customers. This will
help ING further cultivate its core business strengths, especially in the banking industry,
without having to divide its attentions with the insurance industry.
There are further steps that the company can take to strengthen its competitive
position over the next 3-5 years. With mobile banking trends showing an increase in
customer demand for mobile banking products, ING needs to continue to focus and develop
this area of its business to stay competitive. ING has been seen as a leader in the online
banking industry, and to maintain that image, the company will need to continue to stay at
the forefront of technology in the business. One of the ways the company could do this is by
focusing more on the younger generations of bankers and offering more products specifically
aimed at younger people. The company has already started moving in this direction in its
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U.S. markets, offering savings accounts specifically for children. Some other products that
ING should consider are pay cards for allowances, dual purpose products such as
combination work or student ID/debit or credit cards and further innovation to where a card
is no longer even necessary to pay for items. These types of advances and product mixes can
further insure that ING stays ahead of its competitors in the online banking industry.
ING also needs to continue to expand the online banking advantage it has. As
marketing and security are both key success factors in this industry, the company needs to
strengthen its image with older demographics. Although backward integrating existing ING
Direct firms into more “full-service” banks will help to win over this demographic for ING as
a company, it may not be the best way to show its older customers that online banking is the
way of the future because it sends a mixed-message. ING should be focusing its marketing
efforts more on mature demographics, emphasizing the things that older populations care
about – reputation, security and relationships.
IV. Recommendations and Conclusions
ING continues to expand its bank business throughout the world, but more
importantly, it is shaping the framework of the online banking industry as it goes. The
company is keenly aware of the forces that shape the online banking industry and also how
to insulate it from these forces to remain profitable and stay ahead of its competition. As ING
is heavy on strengths and opportunities, it needs to focus its energy on continuing to appeal
to younger generations with mobile technology while also appealing to more mature
customers through increased relationship banking and better marketing of the security of
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should consider expansion into countries like Chile to continue to be the pioneer in the
online banking industry in countries where this is a fairly new concept.
Update 2014
While ING was purchased by Capital One in February 2013, becoming Capital One
360, the model that started the company, as well as its success has not changed
(www.capitalone360.com). Capital One continues to honor the traditions that made ING
Direct a successful company, including free checking, free savings, and incentives for opening
new accounts, including market accounts.
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References
Alkhateeb, F. B. & Alshare, K. A. (2008). Predicting student’s internet usage in two emerging
economies using an extended technology model (TAM). Academy of Educational
Leadership Journal, 12(2), 109-128.
Barth, C. (2011). Capital One to buy ING Direct USA for $9 billion. Forbes.com, 10. Retrieved
from EBSCOHOST.
Bartlett, C.A., and Beamish, P.W. (2011). Transnational management: Texts, cases and
readings in cross- border management. New York, NY: McGraw Hill.
Beier, J. and Fox, S. (June 14, 2006). Online banking 2006: Surfing to the bank. Retrieved
from http://www.pewinternet.org.
Capital One 360. (2014). Retrieved from http://www.capitalone360.com
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Complete.
Chile. Retrieved from http://www.everyculture.com/Bo-Co/Chile.html#b
Company Information. (2011). Hoovers. Retrieved from http://www.hoovers.com.
Devlin, J. F., & Gerrard, P. (2004). Choice criteria in retail banking: an analysis of trends.
Journal Of Strategic Marketing, 12(1), 13-27.
Farcas, D., & Reininger, M. (2010). Distance education in the form of e-learning in Chile:
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Gross, M.B., Hogarth, J.M, and Schmeiser, M.D. (2012, March). Consumers and Mobile
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How can I start a bank? Retrieved from http://www.federalreserve.gov.
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banking/chile-online-banking-usage-on-the-rise/744895-12
Products. (2012). Ally. Retrieved from http://www.ally.com.
Products. (2012). Ascencia. Retrieved from http://www.ascencia.com.
Products. (2012). Bank of America. Retrieved from http://www.bankofamerica.com.
Products. (2012). Bank of China. Retrieved from http://www.bocusa.com.
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Products. (2012). Discover. Retrieved from http://www.discover.com.
Products. (2012). E-trade. Retrieved from http://us.etrade.com.
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Appendix A
Table 1-1: Data courtesy of http://www.hoovers .com and each individual bank’s website (see references for full list).
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Strategic Group Map
Table 1-2
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Appendix B
SWOT Analysis
• Appeals to the average consumer
• Offers lowest fees in the business • Reaches more countries with
online banking products than any other firm
• Only company it its strategic group
• Possesses less than 1 % of the global market share
Strengths Weaknesses
Opportunities Threats
• Increase market share through mergers
• Mobile banking technology • Staying ahead of other online
banks • Appeal to younger customers
and cultivating relationships through ING Cafes (Neier, Tarter & Zahay-Blatz, 2011)
• Larger companies capitalizing on ING’s business model
• Potential to isolate richer customers while catering to the average consumer
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Appendix C
PESTL Analysis: Chile
(Sources Chile Country Report, 2011; Reininger, 2010; http://www.everyculture.com; Jain, Laboissiere, & Larraguibel, 2007; Parker,2008)
• Presidential democracy • Open, free-market economy • Political environment unlikely to
change in the near term • Pro-market and business friendly • Policies promote entrepreneurship
and cut bureaucracy • Transparent regulatory framework • Stable legal environment
• GDP growth between 4.8%-6.2% expected from 2011-2015
• Government has cash surplus • High inflation • Strong currency, price stability • BCC raising interest rates, fiscal
tightening • Still recovering from a 2010
earthquake • Private consumption growth • Privatized pension system (higher than
avg savings • High foreign investment and cash
flows • 7% Unemployment
Political/Legal Economic
Socio-Cultural Technological
• Reorientation of education system likely in the near term
• Population of 17.4million • Higher education valued • High urban population distribution • Class system • Unequal labor distribution between
men and women • Strong family loyalty
• Mobile technology and e-learning increasing availability of higher education
• Ranked #1 in Latin America on the networked readiness index
• Positive views on technology
CHILE