Banks gamble with opposite aproaches to the market; either way, they appear to have made a difference

Risk & Insurance, August, 2005 by Cyril Tuohy

In the financial services sector, two companies stand out for having upended conventional business models and having made a difference, this year's theme at the 77th annual meeting of the Insurance Accounting & Systems Association.

For doing so, these companies and their shareholders have reaped rewards beyond their dreams, said Polly LaBarre, a keynote speaker at the IASA gathering in Anaheim, Calif., in June.

The companies followed a strategy of advocacy, not the mimicry that most companies choose in their chase for higher sales, more customers and bigger market share.

Exhibit A is the Internet bank ING Direct USA. The Delaware-based, direct-to-customer bank sells very few products and doesn't use branches to do it. It uses the Web and the telephone. That means lower costs and higher rates for depositors.

Most important, said LaBarre, is that the bank's founder follows a strategy counter to the majority of the banking industry. His strategy rewards thrift instead of consumption and restraint in a world where desire is instantly gratified.

LaBarre said this "strategic advocacy" on the part of management and CEO Arkady Kuhlmann is its key to success. "Behind every great company is a genuine sense of purpose," she said.

The bank, launched in September 2000, has 2 million customers and $30 billion in deposits. It is growing by 40,000 customers a month, largely thanks to word of mouth.

This bank has also fired 3,600 finicky customers who demanded too many services, or moved too much money in and out of accounts. One such customer was actor Robert DeNiro, who tried to invest several million in the bank, said LaBarre.

LaBarre's theme was tailored to an audience of accounting-systems experts struggling to find new and cheaper ways to comply with complex federal reporting laws. Much of that initiative will come not from new products and services, but from new management thinking, said Cathy Ellwood, IASA's outgoing president. "I think our industry is ripe for innovation," she said.

Exhibit B in LaBarre's keynote address was Commerce Bank, one of the fastest-growing banks in the country. Based in Cherry Hill, N.J., the bank bills itself as the nation's "most convenient bank." Instead of its branches keeping "bankers' hours," the bank has taken the branch experience to a new level by following cues from retailers like Target and Nordstrom.

The bank's branches are open seven days a week for 12 hours with a 15-minute grace period for customers just depositing cheeks. These are among the ingredients that CEO Vernon Hill called the "wow culture," said LaBarre.

During training of new employees at "Commerce University," current employees take the coats of new employees and offer them coffee, all

in the name of inculcating a service mentality into the habits of new recruits.

"It's not enough to do things a little better than your competition," said LaBarre. "You have to be unforgettable." That's when customers will stick with you.

Ironically, the ING and Commerce models are very different. One is focused on simplicity, the other on service. Yet they both work. "One's not right or wrong," she said. "It's about connecting with customers and people."