ING-Diba continued its pioneering role as Germany’s biggest digital bank became the first to buy a fintech platform to increase its penetration in lending to small and medium-sized companies.
The unit of the Dutch ING Group announced Monday it will acquire Lendico, a lending platform launched in 2013 by the tech incubator Rocket Internet. Terms were not disclosed and the purchase requires approval from Germany’s antitrust authorities.
The acquisition is further evidence of ING’s ambitions to get into the top ranks of European banking by reinventing the concept of the universal bank. ING-Diba, which resulted from the 2003 acquisition of Allgemeine Deutsche Direktbank, already ranks third among all German banks in number of customers, with 9 million, mostly individuals.
Banks have been reluctant to purchase fintechs outright, preferring to enter into partnerships with the internet platforms to plug gaps in their online offering. ING-Diba’s acquisition of Lendico is a special case, explained Nils Beier, managing director at Accenture Strategy. “The bank isn’t taking over a company with a customer base, but buying a technology that can be quickly hooked into and close a gap in operations,” he said.
“In the future, we want to grow faster.”
The gap in this case consists of small firms with perhaps just a couple of million euros in annual sales and five to 10 employees who have trouble getting credit from a bank, despite the full array of private, savings and mutual banks in Germany’s saturated market. With their cumbersome overhead, traditional banks have trouble evaluating creditworthiness for firms borrowing only €100,000 or so. Fintechs, with their algorithms and standardized products, can handle these transactions much more easily and cheaply.
Lendico is one of the smaller lending platforms in Germany, and the country itself is hardly a leader in the area. Current monthly volume in new credits is only €5 million. After some less-than-successful forays into retail lending, it has specialized in small-business credits. The current owner, Britain’s Arrowgrass hedge fund, apparently didn’t have to think too long about selling when ING-Diba expressed an interest.
For Amsterdam-based ING Group, the push into fintech is just the latest example of how it stays in the vanguard of digital transformation. ING’s CEO, Ralph Hamers, recently told Handelsblatt that the Dutch bank is much further along in this process than Deutsche Bank, for instance, which is still wrestling with the layoffs and infrastructure to make the transition. “Unlike most of our competitors, we’re already practically finished with this transformation,” Mr. Hamers said.
He reckons that as much as 90 percent of banking business – such as payments, credits, even money management – can be performed automatically by computers and artificial intelligence. He estimates the group’s online banks are already handling 70 percent of the business automatically.
The German direct banking unit, for instance, has been pushing both securities and payments transactions, which contributed to its fifth record earnings year in 2017, with net profit climbing to €877 million ($1.09 billion) from €859 million.
For ING, the focus on small and medium-sized companies is part of its DNA. The current group, resulting from successive waves of consolidation among Dutch insurers and banks, traces its banking roots to Nederlandsche Middenstandsbank (NMB), which in its day was focused on that market segment.
ING’s push into digital, however, is cutting-edge. The cozy “house bank” system that characterized continental banking for decades has long since collapsed, yielding to the transactional banking of today.
Big banks like Amro Bank (now ABN AMRO) in the Netherlands and Deutsche Bank in Germany were one-stop shopping for large corporations, supplying them with credit, underwriting their securities and often holding a large equity stake. Savings and mutual banks played the same role for Germany’s Mittelstand. Given their massive investment in branch networks and staff, these traditional banks have been slow to adapt to the digital age.
ING-Diba sees itself less as a niche player and more as a 21st-century version of the universal bank, relying on digital technology to supply the traditional house bank services on an a la carte basis. Under its chief executive, Nick Jue, the German unit has made it clear that his ambitions run well beyond just payments and loans. A new cooperation with online money manager Scalable Capital attracted 14,000 customers since September, investing €330 million. ING-Diba is also working together with insurance broker Clark. Mr. Jue wants the unit to have 10 million customers by the middle of next year.
In presenting ING-Diba’s record 2017 results earlier this month, Mr. Jue reiterated their ambition of becoming one of Germany’s biggest universal banks. “In the future, we want to grow faster,” he said, becoming what he termed “the first agile bank in Germany.” He signaled already then that the bank sees “a lot of potential in the sector with small and medium-sized companies.” The Lendico acquisition will no doubt make ING-Diba more agile in that sector.
Frank Drost is a Handelsblatt reporter in Berlin, covering financial supervision and banks. Katharina Slodczyk covers banking in Frankfurt. Darrell Delamaide is a writer and editor for Handelsblatt Global in Washington, DC. To contact the authors: firstname.lastname@example.org, email@example.com, and firstname.lastname@example.org.