It was announced yesterday that Capital One (you know, “whats in your wallet?”) would purchase ING Direct.  Many of you may be familiar with ING Direct, but some may not.  ING Direct is an online bank in the US that offers checking and savings as well as a few other basic banking products.  I’ve been a user of their services for years because they have traditionally offered much higher interest rates on deposit accounts compared to traditional brick and mortar banks (much lower overhead costs due to a lack of said brick and mortar).

ING Direct was forced to sell itself because its parent company (a bank by the same name in Europe) was ordered to sell off its US operations because of bailout money it got during the financial crisis.  For Capital One, this means that in the span of just a few years it goes from a large credit card company to the 5th or 6th largest bank (depending on how you measure) and the largest online bank in the country.

People like me who have spent a lot of time in and around the DC area know Capital One quite well.  The company is based just outside of the district and they purchased one of the biggest banks in the area (Chevy Chase Bank) and made similar moves in other parts of the country.  The Capital One brand is on the ground and now it’s about to be on the web too.

This comes during a time when many banks, small and large, still teeter on the edge of oblivion.  Lots of banks are struggling to get by and some continue to fail.  But there have been some banks that have started or thrived during this time.  When the FDIC comes in and takes over a bank they basically sell it off for pennies on the dollar to another bank.  Some investors have raised money to buy these banks and have created a small portfolio of taken over banks.  Your favorite neighborhood bank may be in this position.

But companies like Capital One have used the last few years to become a bank straight up.  From a finance perspective this makes perfect sense, but that goes beyond the scope of this blog.  Capital One has a significant advantage over some of its competition too.  The only banks larger than Capital One now are Citi, Wells, Bank of America, and JPMorgan.  All these banks have very large investment units that are being shaken down by government regulation.  They are also all hampered by huge mortgage portfolios.  Capital One inherits one from ING Direct and some other legacy banks, but it is much smaller than the competition.

What this means is Capital One is in a good position to not only be the 5th largest bank, but the fastest growing one.  That is if they are able to merge all their operations successfully and get some of that good ING Direct customer service to rub off on them.  It’s a tough hill to climb, but the banking landscape hasn’t changed much in a generation and most of the big brands are still around.  A little pressure from an up and comer should be good for customers.  Just don’t change my ING Direct interface too much guys.

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categories: banking, business