Operations and IT sourcing in Financial Services The ING approach Université de Liège 27/04/2006 André Vanden Camp ING Belgium – Managing Director ING

Operations and IT sourcing in Financial Services

The ING approach

Université de Liège

27/04/2006

André Vanden Camp

ING Belgium – Managing Director

ING Group - CIO Applications Wholesale Banking

2HEC – ULG/April 26, 2006

OPS&IT sourcing in Financial Services

Introduction to ING Group



# Name Market value in EUR billion as of 4 April 2006

1 CITIGROUP INC 200,42 BANK OF AMERICA CORP 173,73 HSBC HOLDINGS 158,74 AMER INTL GROUP 146,55 JPM CHASE 120,06 MITSUBISHI UFJ FINANCIAL 110,37 UBS 99,88 WELLS FARGO 90,09 ROYAL BANK SCOTLAND 83,3

10 MIZUHO FINANCIAL GROUP 76,311 BANCO SANTANDER 74,912 WACHOVIA CORP 74,513 ING 68,814 BNP PARIBAS 67,815 UNICREDITO 65,716 SUMITOMO MITSUI FINANCIAL 65,617 BARCLAYS 61,118 HALIFAX BANK OF SCOTLAND 59,119 MERRILL LYNCH 58,920 CREDIT SUISSE GROUP 57,8

Source: Bloomberg

Top 20 global financial institutions



# Name Market value in EUR billion as of 4 April 2006

1 HSBC HOLDINGS 158.72 UBS 99.83 ROYAL BANK SCOTLAND 83.34 BANCO SANTANDER 74.95 ING 68.86 BNP PARIBAS 67.87 UNICREDITO 65.78 BARCLAYS 61.19 HALIFAX BANK OF SCOTLAND 59.1

10 CREDIT SUISSE GROUP 57.811 BBVA 56.412 AXA 54.413 ALLIANZ 52.614 SOCIETE GENERALE 52.315 DEUTSCHE BANK 50.816 ABN AMRO 47.117 LLOYDS TSB GROUP 44.918 CREDIT AGRICOLE 44.019 FORTIS 39.220 GENERALI 38.6

Source: Bloomberg

Top 20 financial institutions in Europe



Top 20 global financial institutions 1991 – 2005

4 March 1991 December 1994 4 April 2006

Market cap. Market cap. Market cap.Financial Institution in bln EUR Financial Institution in bln EUR Financial Institution in bln EUR

1 INDUSTRIAL BK. JAPAN 81.9 1 BANK OF TOKYO-MITSUB. 74.3 1 CITIGROUP INC 200.42 FUJI BANK 77.1 2 INDUSTRIAL BK. JAPAN 73.0 2 BANK OF AMERICA CORP 173.73 DAI-ICHI KANGYO BK. 71.3 3 FUJI BANK 67.1 3 HSBC HOLDINGS 158.74 BANK OF TOKYO-MITSUB. 68.7 4 SUMITOMO BANK 62.8 4 AMER INTL GROUP 146.55 SANWA BANK 68.3 5 DAI-ICHI KANGYO BK. 61.8 5 JPM CHASE 120.06 SUMITOMO BANK 68.1 6 SANWA BANK 60.5 6 MITSUBISHI UFJ FINANCIAL 110.37 SAKURA BANK 65.2 7 SAKURA BANK 46.8 7 UBS 99.88 NOMURA SECURITIES 41.4 8 NOMURA SECURITIES 42.8 8 WELLS FARGO 90.09 TOKAI BANK 35.8 9 AMER. INTL. GP. 36.4 9 ROYAL BANK SCOTLAND 83.3

10 MITSUBISHI TST. & BKG. 23.4 10 ASAHI BANK 28.3 10 MIZUHO FINANCIAL GROUP 76.311 AMER. INTL. GP. 23.1 11 BERKSHIRE HATHAWAY 28.3 11 BANCO SANTANDER 74.912 ALLIANZ 22.0 12 ALLIANZ 26.5 12 WACHOVIA CORP 74.513 TOKYO MAR. & FIRE INS. 21.4 13 TOKAI BANK 25.6 13 ING 68.814 DAIWA BANK 21.4 14 FANNIE MAE 23.4 14 BNP PARIBAS 67.815 SUMITOMO TRUST & BANKING 20.9 15 MITSUBISHI TST. & BKG. 20.4 15 UNICREDITO 65.716 MITSUBISHI ESTATE 20.6 16 DAIWA SECURITIES GROUP 20.4 16 SUMITOMO MITSUI FINANCIAL 65.617 YASUDA TST. & BKG. 19.6 17 TOKYO MAR. & FIRE INS. 19.9 17 BARCLAYS 61.118 DAIWA SECURITIES GROUP 18.7 18 SUMITOMO TRUST & BANKING 18.3 18 HALIFAX BANK OF SCOTLAND 59.119 NIKKO SECURITIES 15.5 19 DEUTSCHE BANK 18.0 19 MERRILL LYNCH 58.920 ASAHI BANK 15.3 20 AMERICAN EXPRESS 17.6 20 CREDIT SUISSE GROUP 57.856 ING GROUP 4.9 33 ING GROUP 10.4



About 114,000 employees more than 50 countries

About 114,000 employees more than 50 countries

ING: a world-wide group



ING Group Pedigree

De Nederlanden est. 18451845/1963

De Nederlanden est. 18451845/1963

De NationaleLevensverzekering-

Bank 1863/1963

De NationaleLevensverzekering-

Bank 1863/1963

Rijkspost-spaarbank1881/1986

Rijkspost-spaarbank1881/1986

Postcheque- en Girodienst1918/1986

Postcheque- en Girodienst1918/1986

Postbank1986/1989

Postbank1986/1989

NederlandseMiddenstandsbank

1927/1989

NederlandseMiddenstandsbank

1927/1989

NMB PostbankGroup

1989/1991

NMB PostbankGroup

1989/1991

Life of Denver1977

Life of Denver1977

Southland Life1989

Southland Life1989

Western Union1988

Western Union1988

Halifax1959

Halifax1959

Belair Direct1989

Belair Direct1989

The Commerce Group 1989

The Commerce Group 1989

RVS1984

RVS1984

Nationale-Nederlanden1963/1991

Nationale-Nederlanden1963/1991

Wellington1995

Wellington1995

Allianz of Canada2004

Allianz of Canada2004

Aetna2000

Aetna2000

Equitable of Iowa1997

Equitable of Iowa1997

Guardian1998

Guardian1998

Canadian GroupUnderwriters 1999

Canadian GroupUnderwriters 1999

Seguros ComercialAmérica 2001

Seguros ComercialAmérica 2001

ReliaStar2000

ReliaStar2000

Parcom1994

Parcom1994

Rodamco Asia2004

Rodamco Asia2004

Clarion1998

Clarion1998

Bank BrusselLambert 1998

Bank BrusselLambert 1998

Bank Slaski2001

Bank Slaski2001

Barings1995

Barings1995

DiBa2002

DiBa2002

Furman Selz1997

Furman Selz1997

Bank Mendes Gans1997

Bank Mendes Gans1997

19911991

Westland UtrechtHypotheekbank 1985

Mercantile Mutual1987

Banking

Insurance

Asset Management

1970 Year of acquisition

1845/1963 Year of founding / Year of merger



Insurance Americas

Insurance Europe

Insurance Asia– Pacific

Wholesale Banking

Retail Banking

ING Direct

ING Group

ING Group Organisational structure

Operations and IT Banking



Context



Developments at ING level

• ING has the ambition to be a global financial player with focus on certain service areas and markets. Needs a winning performance culture to match the performance of our peers

• ING lines of business (Retail / Wholesale) need a considerable improvement of their cost/income ratio to stay successful in the mature home market of the Benelux. Potential for expansion is limited, so lowering costs is crucial

• Fiercer competition for Ops&IT Banking (traditional and virtual) because of accelerating technological developments

Consequence for Ops&IT Banking : Internal customers are increasingly critical and demand quicker service and better quality for a competitive price with an improved customer focus and maximum operational flexibility



What does this mean to Ops&IT Banking ?

• Need for improved customer- focussed performance focus on core activities

• Need for cost reduction and cost transparency

• Focus on Service Management from “building applications” to “providing a service”

Service ManagementOrganisation

Internal customer A

Internal customer B

Internal customer C

Internal service providersoperations -applications -infra

Application Software providers

Outsourcers



BPO versus ITO

Strategy

Products + Channels

“Labour”Applications

Processes

IT OPS

IT INFRA

Level o

f ou

tsou

rcing

Ope

ratio

ns B

PO

IT O

utso

urci

ng

ActivitiesOutsourcing of application maintenance and development

Outsourcing of Technical Helpdesks

Outsourcing of Infrastructure operations



Example of potential BPO in ING : Document Services

The DockING project : outsourcing of document services in NL, BE and PL

Scope : Post opening – Scanning - Data capture – Enrichment – Presentation – Printing – Fulfillment – Reprographics - Preparing for Mail - Mail Delivery

Transfer of Assets and Staff

Main objectives :Fixed costs converted to variableAssets refresh included in contract prices No contract changes unless volume drop below 80% of forecasted volume baseline

The DockING project : outsourcing of document services in NL, BE and PL

Scope : Post opening – Scanning - Data capture – Enrichment – Presentation – Printing – Fulfillment – Reprographics - Preparing for Mail - Mail Delivery

Transfer of Assets and Staff

Main objectives :Fixed costs converted to variableAssets refresh included in contract prices No contract changes unless volume drop below 80% of forecasted volume baseline

Volume Baseline

Year 1 Year 5

Volume Units

0

100

Year 2 Year 3 Year 4 Year 6 Year 7

20



Scope of the outsourcing :

All hard & software for:

• Desktop/laptop (including printers, multifunctionals, file/print servers, GRAS, building LAN)

• Mail/collaboration (including email, webmail, remote mail, exchange, outlook, sharepoint)

• Telephone systems (Classic/PBX, CTI, CMS, VRU, mobile, PDA, GSM, blackberry, audio/video conference)

• Workplace services delivered from NL & BE

In other words: everything on the desk except the pencil and the desk

Example of potential Infra outsourcing in ING : Workplace Services (1)



Scope bundled for multiple external suppliers through one integrator :

ING IT infrastructure

Integrator

Service

desk

End - user

computing

Desktop

hardware

Server

ManagementVoice LAN

ING IT infrastructureING IT Infrastructure

IntegratorIntegrator

Service

desk

Bundle Service

desk

End - user

computing

Bundle End user

computing

Desktop

hardware

Bundle Desktop hardware

Server

Management

BundleServer management

Voice Bundle Voice

LAN BundleLAN

The Integrator manages all the bundle suppliers. A Preferred Supplier provides service for a particular Bundle. The suppliers and the integrator make up a Preferred Supplier Team.

Example of potential Infra outsourcing in ING : Workplace Services (2)



applications “Rightsourcing”



in house responsibility Own staff

External staff

3rd party responsibility= outsourcing

On site / on shore

Near shore

Off shore

Standardized software provided by 3rd party

Software

Software + hardware

Home made applications

Software packages

customize & manage inhouse

Own staff

External staff

RIGHTSOURCING :

Rightsourcing is about finding the balance between inhouse sourcing and different types of external sourcing

• Rightsourcing is about finding a balance between inhouse and external sourcing External Sourcing is about finding the right collaboration model with the right supplier

• Outsourcing is not a target, but a means to reach our objectives



Rightsourcing is about selecting the right sourcing model …

• Evolution towards outsourcing requires internal maturity and mutual trust and therefore time • Selection of the right supplier is critical to grow towards partnership• Decision criteria to chose between in house and external sourcing is key

time

Cos

tsS

avin

gs&

Ris

ks

co-sourcing

outsourcing

resource

providing

Resource providing :T&M Bodyshopping

ING in control

Co-sourcing : Managed T&M

Split of responsibilties

Outsourcing : Fixed Price

SLA driven service delivery

co-sourcingoutsourcing

resource

providing

Offshore

Onshore

In housesourcing



for the right activities…

1. Evaluate risksWhat applications can we outsource ?

2. Evaluate benefitsWhat applications should we outsource ?

Low HighBu

sin

es

s V

alu

e i

f O

uts

ou

rce

d

High

Low

Best candidates for outsourcing

Good candidates for ousourcing but limited cost reduction potential

Good candidates for outsourcing but limited direct business value contribution

Weak business case to outsource

Appl. 1Appl. 2

Appl. 3

Appl. 4

Appl. 5

Cost Reduction Potential

High Low

Ca

pa

bil

ity

High

Low

Best candidates for outsourcing

Complexity could be overcome by segmentation or knowledge transfer

Capability could be overcome by structure, consistent processes and tools

Could present challenges for Rightsource

Appl. 1Appl. 2

Appl. 3

Appl. 4

Appl. 5

Complexity Relative size of appl. in

FTEs

Source : CapGemini

Capability :eg :• maturity requirements mgt & testing• Market readiness• Available documentation

Complexity :eg :• Stability of the application• Application interconnection• Business criticality

Business Value (non financial) :eg :• Make costs variable• Guarantee service continuity• Find scarce resources• Focus on core activities• Avoid direct dependency form changing external regulations

Cost reduction potential :

Financial business case

Cost reduction is not always the primary driver



with the right supplier …

1. preferred suppliers

2. Nicheplayers

1. Offshore Delivery

3. Onshore Delivery

2. Global Delivery

4 Bodyshopping

We select a limited number of suppliers to build long term partnerships :

But also need to be (and remain) attractive to our suppliers :

% o

f su

pp

liers

tu

rno

ver

wit

h IN

G

ING’s attractiveness

Supplier A

LowLow

High

High

Exploitable customer Core customer

Nuisance Development customer

D

F

E

ING spend

C

B

supplier A B

C D E

F



Onsite / Onshore

(BE/NL)

Offshore

Criteria / KSF Advantages Risks Mitigation

• Security Issues• Pilot Phase• Small applications

/projects

• Cultural fit• Limited transition risks• Transfer of staff

possible

• Limited economies of scale

• No (or limited) process optimisation (on site)

• Higher staff costs

• 100% variable costing model

• Dual shore model

• Need for formalised change management processes

• Reasonable (transition/ translation costs)

• Big work volumes

• Lower staff costs (-40%)

• 24/24 activity if needed

• Culture / language gap• High start-up costs• Service windows

• Dual shore model• ODC-concept• Preferred vendor

relationship• SLA’s based on CET

Nearshore

• Need for formalised change management processes

• Reasonable (transition/translation costs)

• Lower staff costs• Cultural and

geographical proximity smoothens

• communication.same timezone

• Possible culture / language gap

• High start-up costs

• Dual shore model• ODC concept• Preferred vendor

relationship

in the right location



Conclusions

Documents

Operations and IT sourcing in Financial Services The ING approach Université de Liège 27/04/2006 André Vanden Camp ING Belgium – Managing Director ING