Would You Like a Mortgage With Your Mocha?

There's no mistaking the First Bank of the United States in downtown Philadelphia. It looks the way a bank is supposed to look: solid, with tall Corinthian columns shouldering a weighty triangular pediment. Chartered by Congress in 1791, each marble and mahogany piece of the building is designed to convey a sense of security, authority, reliability, and power.

A few blocks down Walnut Street is a storefront that no one would confuse with a traditional bank. The facade is made of glass. Inside, a bright-orange mountain bike hangs from the ceiling. Wall-mounted plasma screens are tuned to ESPN. There are café tables and Internet stations -- and not a column in sight.

Memo to banking's old guard: Meet the new guard -- and have a chai latte. This place, one of three cafés operated by ING Direct, may be a sign of things to come in one of America's most conservative industries. There are no uptight bankers behind heavy desks -- only baristas who are as happy to talk about last night's Sixers score as they are about a home-equity loan. The café is open on Saturday nights and Sunday afternoons, so you can enjoy a biscotti while you check on your savings.

Everything about the place defies expectations -- which is a big part of ING Direct's strategy, says president and CEO Arkadi Kuhlmann. "You have to shock people a little bit to get them to think differently about how they manage their money," he says. "The design of the cafés tells people that what they've come to expect from their bank isn't what we deliver. We're going to be simple and easy and human."

ING Direct's products are straightforward: mortgages and home-equity loans, a half-dozen mutual funds, and CDs and savings accounts that pay some of the highest rates available. There are no fees or minimums. Customers can manage their accounts online, by phone, or by mail. The cafés, in Philadelphia and New York and soon to open in Los Angeles, introduce new customers to ING Direct, give current and prospective clients a place to hang out -- and taunt competing banks.

In just two-and-a-half years, ING Direct has attracted more than a million customers and $10 billion in assets, shifting from startup mode to being one of the 50 biggest banks in the country. New assets are streaming in at a rate of close to $500 million a month. ING Direct, based in Wilmington, Delaware (but a division of the Amsterdam-based ING Group), had expected to lose $37 million in 2002. Instead, it turned a profit of $40 million.

For Kuhlmann and his 600 employees, the numbers show that they've made a strong start toward "leading America back to saving," after the late-1990s infatuation with a booming stock market. But only a start. "This industry is not strong in terms of customer appreciation," Kuhlmann says. Asked whether that means that banks don't appreciate customers or that customers don't appreciate their banks, he nods and smiles: "Yes."

TECHNOLOGY + MARKETING = INNOVATION

ING Direct's headquarters is located in a restored furniture-storage warehouse in downtown Wilmington, where its rambunctious approach to banking is being felt even more keenly than in Philadelphia. The company is doing a lot at its home base. Instead of building its own office tower, it has chosen to invest in reinvigorating the area around Wilmington's run-down train station. This summer, part of the company will move into a renovated Pennsylvania Railroad building wedged between the train station and the Christina River. ING Direct has been working with the city to connect its new building to the station by closing a street and erecting a glass atrium full of shops, restaurants, and an ING Direct Café. The company is also advocating a redo of the train station itself.

For all of what ING is doing, a big part of its success stems from the things that it doesn't do that allow it to deliver high interest rates and serve up radically simplified loans. It doesn't have an ATM network or traditional bricks-and-mortar branches. It doesn't do outbound telemarketing or force customers to talk to a computer before they can talk to a service rep.

What the company does do -- enthusiastically -- is invest in technology and marketing. At any given moment, the odds are good that a project is under way to keep improving the ING Direct Web site, such as the development of a feature that tracks all of the steps involved in applying for a mortgage -- information that will render many phone calls irrelevant.

And one-third of the company's operating budget goes to marketing, according to Kuhlmann. But the marketing is concentrated on programs -- direct mail, Web ads, some TV -- that get customers at the lowest cost. "It's not unusual for a bank to pay $300 or $400 to acquire a customer," says Dave Lewis, ING Direct's chief marketing officer. "We're below $100." Close to 40% of all new accounts are generated by word of mouth, either through "bounty" programs or simply through one customer telling another about this out-of-the-ordinary bank.

ING Direct's intention isn't to replace local banks: An ING Direct account is supplementary by nature, since there isn't the option of writing checks or pulling cash from an ATM. "I want you to have the expectation of take-out food, not of full service," Kuhlmann says. A customer who calls the 800 number multiple times a day to make balance inquiries spoils the business model for everyone else. "We're not afraid to close accounts on philosophic and economic principles," Kuhlmann adds.