To find a bank that is thriving in Germany's troubled banking sector, look no further than ING (>> ING Groep) of the Netherlands, which is upending German tradition with a radical online-only, no-frills and zero-fees offering.
With its bright orange logo and catchy ads featuring one of Germany’s most famous athletes, NBA basketball player Dirk Nowitzki, ING's ING-DiBa won more than 50,000 new customers in the second quarter, figures released on Aug. 2 show.
The Frankfurt-based subsidiary now has more than 8 million customers and ranks as the No. 3 retail bank in Germany, behind behemoths Deutsche Bank (>> Deutsche Bank) and Commerzbank (>> Commerzbank).
Unlike rivals struggling with outdated technology, shrinking margins from negative interest rates and expensive branches that are even more expensive to close, it is also profitable.
ING-DiBa's costs are 40 cents for each euro of revenue it gains from charging interest on products like car loans and mortgages, or receives in fees for money management, compared to 70 cents and higher for traditional German banks.
From his office in Amsterdam, Chief Executive Officer Ralph Hamers said the key to the bank's success was its simplicity, from opening accounts to the lack of hidden fees.
"We had the low barrier to entry, we had the simple products, we had transparency in terms of conditions," he said in a recent interview. "But we're also cheap. We're the no-fees bank, right?"
In a country with as many bank branches as bakeries, it helps that Germans are starting to break old habits, such as always paying with cash.
Customers no longer want to make trips to bank offices or deal with paperwork, they want to do their banking via mobile phones, including approving payments by fingerprint, ING says.
"In comparison to the German banks, our offering is so much more simple, so much more accessible, so much easier," Hamers said.
Established banks are taking note, adjusting branch-focused business models and enhancing digital offerings, analysts say.
"It's all about finding the right balance," said Bernd Ackermann, an analyst with S&P in Frankfurt.
By most standards, Germany's banking sector has too many banks, too many branches and too many employees.
The country was home to 1,888 financial institutions and 33,914 branches at the end of 2016, according to a Bundesbank report in May. That's half what it was 20 years ago, but analysts reckon the consolidation hasn't gone far enough.
A study by Bain & Company noted France gets by with fewer than 500 banks, and Japan with around 140. The consultancy said the reduction of 10,000 branches and 115,000 jobs over the next decade is "possible and necessary".
German banks have for years relied on a simple model of making money on the margin between the interest it pays on deposits and that which it charges for loans, using large branch networks to market their businesses.
When the European Central Bank pushed rates into negative territory in 2014, the limitations of the model's inefficiencies were laid bare. While returns on investments diminished, costs didn't.
A small number of banks have introduced negative interest rates for wealthy customers to claw back some margin.
Volksbank Reutlingen in southwest Germany said earlier this year it would pass on negative rates to its retail customers but had to reverse course after consumer protection advocates cried foul over a lack of transparency in pricing.
The bank last week announced merger talks with the nearby Vereinigte Volksbank.
Other competitors struggling with costs have imposed fees on previously free services like basic bank accounts, withdrawals, transfers and printed bank statements to keep business afloat.
That worked to ING-DiBa's advantage last August, when Deutsche Bank's consumer banking unit Postbank announced that it would start charging for its basic accounts.
The fees of just a few euros each month were too much for many Germans, who are highly price-sensitive after losing their savings twice to hyperinflation over the past 100 years.
In a direct response to the policy, as many as 3,000 customers a day fled from Postbank to ING-DiBa over a brief period, an ING-DiBa spokesman said, without giving precise details.
ING-DiBa executives said at a banking conference in late June they will keep services free for as long as they can.
A BIT OF LUCK
To some extent, ING was lucky - unlike competitors who face a hefty bill closing branches in Germany's highly regulated jobs market, ING-DiBa never had any branches.
The bank was founded in 1965 as the Bank fur Sparanlagen und Vermoegensbildung, initially serving industrial union members by mail and phone and later a broader customer base by fax, the internet and apps as it went through multiple name changes.
ING Group acquired a 49 percent stake in 1998 and bought the rest in 2003. "DiBa" stands for direct bank.
Commerzbank says it is sticking to the branch model, and has committed to keeping about 1,000 branches, revamping them with a sleek design, a lounge-y feel and coffee machines.
Michael Mandel, board member for Commerzbank's retail operations, said at the June banking conference that the bank had tested its strategy "to death" and found that customers prefer to meet with bankers in person for certain services, even if they have to leave the comfort of their home or office.
A visit to a branch is important for marketing and clinches two-thirds of its new customers, Commerzbank says.
ING's Hamers argues that German banks' reluctance to drop their branches is hurting their ability to compete.
"You can actually now develop a relationship with a customer which is as broad as with any normal branch bank, but digitally only," he said. "Because everything is digital, the data analysis enables you to understand the customer that much better."
Commerzbank, which is restructuring and is still 15.6 percent owned by the government following a bailout, posted a loss in the second quarter, figures released on Aug. 2 showed.
Dirk Mueller-Tronnier, an accountant and bank analyst with Ernst & Young in Frankfurt, has been an enthusiastic ING-DiBa customer since the 1990s.
He enjoys the simplicity of the bank's offerings. But above all, he likes that it is free.
"Germans don't like to pay for a service that has been traditionally free," he said. "If ING-DiBa were to start charging, I would certainly look elsewhere."
(For a graphic on bank branches in Europe, click http://tmsnrt.rs/2vo8rfl)
(Reporting by Toby Sterling in Amsterdam and Tom Sims in Frankfurt; Editing by Sonya Hepinstall)
By Toby Sterling and Tom Sims