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Capital One/ING Direct Deal Highlights Competitive Challenges Facing "Legacy" Institutions

Capital One/ING direct deal highlights competitive challenges facing lLegacy" institutions; Capital One says the $9 billion deal will extend its reach to young, high-income consumers; Allstate has the same idea in its planned acquisition of Esurance and Answer Financial.

It's a bit odd to think of Capital One Financial Corp. as a traditional or "legacy" organization. After all, the McLean, Va.-based bank, which got its start in the late 1980s as Signet Bank's cards business and was spun off as an independent entity in 1995, is renowned for its innovative use of technology, particularly in its forward-thinking application of analytics to customer segmentation, product development and marketing.

But evidently Capital One's management thinks the company needs a big injection of "next-generation" thinking. The need to broaden the brand's appeal to Web- and social media-savvy young consumers seems to have been a key impetus behind Capital One's decision to acquire the ING Direct USA operations of ING Groep. In announcing the $9 billion deal yesterday, the company pointed to the attraction of ING Direct's "Industry-leading" direct banking franchise and the opportunity to add "7 million young, high-income, loyal customers." In a press release, Capital One founder and CEO Richard Fairbank noted:

"The acquisition of ING Direct is a game-changing transaction that delivers attractive deal economics immediately and compelling long-term strategic value. The combination of Capital One and ING Direct creates a unique and valuable banking franchise that includes advantaged access to assets, great local scale branch banking in attractive markets, and with ING Direct, the leading direct bank customer franchise with national reach. Adding ING Direct enhances and sustains key sources of shareholder value over the long-term, including growth, returns and capital generation. ING Direct is a tremendous franchise. Its innovative platform and customer-focus are well aligned with Capital One's own vision. We are committed to sustaining and enhancing the great customer relationships that have been central to the success of both banks."

Capital One is not the only high-profile financial institution in recent days to make a dramatic deal aimed at accelerating its participation into what might be called the Web 2.0-based competitive arena. In May, the Allstate Corporation (Northbrook, Ill.) announced that it would purchase online insurance providers Esurance and Answer Financial from the White Mountains Insurance Group in what is expected to be a roughly $1 billion deal. At the time the acquisition was announced, Thomas J. Wilson, Allstate's president, chairman and CEO explained:

"Consumers today expect to have their specific needs met by their insurance companies. Our strategy is to focus on individual preferences and utilize different value propositions for distinct consumer segments. Our Allstate agencies do an outstanding job of serving customers who want a local personal touch and prefer to purchase a branded product. Esurance will expand our ability to serve customers that are more self-directed but still prefer a branded product. Answer Financial will strengthen our offering to individuals who want to be offered a choice between insurance carriers and are brand-neutral. Allstate will be the only company serving all of these consumer segments with unique insurance offerings."

Allstate has been around a lot longer than Capital One, and it has reinvented itself several times over the past couple of decades; the purchase of Esurance and Answer Financial is another chapter in the efforts of a powerful legacy brand to maintain dominance (and relevance) in a very different kind of competitive environment. For Capital One that evolutionary cycle and "moment of truth" appears to have happened much more rapidly.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio

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