CANADIAN

BANKING
INDUSTRY-

1. BY THE END OF 99 THERE WERE 53 FEDRELLY REGULATED BANKS.

2. 8 WERE SCHEDULE I BANKS

3. 3 WERE DOMESTIC SCHEDULE 11 BANKS
4. 42 WERE FOREIGN SCHEDULE 11 BANKS
5. UNTIL 1980 CANADIAN BANKS WERE THE ONLY COMPETITORS
6. BANKS WERE UNABLE TO TAKE DEPOSITS UNDER 150000
7. THOSE BAKS WISHING TO ACCEPT RETAILS DEPOSITS UNDER 150000 COULD
DO SO THROUGH ESTABLISHMENT OF SEPARATE CANADIAN SUBSIDIARY

INTERNATIONAL NEITHLANDS GROUP-

1. HEADQUARTEERS IN AMSTERDAM.

1. COMPANY SERVED 7 MILLIONS CUSTOMERS THROUGH DIRECT BANKING.

2. COMPANY IS ONE OF THE LARGEST COMPANIES IN NEITHLANDS ACTIVE

IN MORE THAN 60 COUNTRIES.

3. ING GROUP WAS TOP 10 GLOBAL PROVIDERS OF FINANCIAL

SERVICESWITH BANKING AND INSURANCE ASSETS TOTALLING MORE
THAN US $ 800 BILLION .

4. IT EMPLOYEED 82000 WORLD WIDE AND EXPERIENCED 21 % GROWTH ON

NET PROFIT.

5. THE ACTIVITIES DONE WERE INSURANCE, BANKING AND INTERNATIONAL

ASSETS MANAGENEMT.

ING DIRECT CANADA-

1. ING BANK OF CANADA WAS LAUNCHED IN THE YEAR 1997 APRIL 22

UNDER THE NAME ING DIRECT.

2. THE MAIN STRATEGY OF THE BANK WAS TO MAKE THE LOW COST
PLATFORM FOR THE RETAIL BANKING OPERATION AS ITS INITIAL
PRODUCT.

3. CUSTOMERS WERE SERVED 7 DAYS A WEEK AND 24 HOURS A DAY

FROM CALL CENTRE AND INTERNET.
 4. IT OFFERED LIMITED NUMBER OF PRODUCTS WITH HIGH DEPOSIT
INTEREST RATES.

5. BY MARCH 2000 IT OFFERED ITS CUSTOMERS SAVINGS ACCOUNT,

MUTUAL FUND AND LOAN ACCOUNTS.

6. THE COMPANY WITH NO BRANCH AND OFFERING SERVICES FROM

ONE PLACE MADE IT OFFER PUBLIC HIGH INTEREST RATES ON
DEPOSITS.

7. INVESTMENT SAVINGS ACCOUNT WAS OFFERED DAILY INTEREST

RATES.

8. THE CORPORATE PLAN FOR 2000 CALLED FOR 50% GROWTH IN THE
CLIENTS.

9. THE BANK HAS GOT LOW INFRASTRUCTURE COSTS, MANAGEMENT

ALSO STRESSED ON TIGHT BUDGETORY CONTROLS.

10. IN 2000 ING DIRECT HAD 242 STAFF ; OF THEM 92 WERE FULL
TIMER CALL CENTRE EMPLOYEES WITH THE TITLE DIRECT
ASSOCIATE.

11. OF THE REMAINING STAFF ;OUT OF THAT 75% WERE TRAINED

TO GIVE SUPPORT DURING PEAK TIME.

OPENING AN ING DIRECT ACCOUNT;

1. To open an account with ING Direct, customers provided- address, postal code, social
insurance number (SIN) and a cheque from their chequing account with any major
Canadian bank. There were four ways in which a client could open an account
with ING Direct.

Telephone the 24-hour call centre and request an application Approximately 60 per cent of
these requests resulted in account openings.

Fill in an online application, or download the application from the Internet and mail it to
ING Direct.

Enrol in person at one of the ING cafes in Toronto or Vancouver.

Fill out an application sent through the mail as part of the company's direct mail
campaign.
2.WHENEVER CUSTOMER TELEPHONED THE DA WOULD RESPOND WITH EITHER A
STANDARD OR EXPRESS FULFILLMENT PACKAGE.

3. For a standard fulfillment package, a DA would answer the call and take down the
customer's name, address, postal code and telephone number. Twice daily, an electronic file of
customer requests was generated and sent to a letter house subcontracted by ING Direct to
mail out standard fulfillment packages to prospective clients. Each client was requested to
complete an enclosed application form and return it with an initial deposit.

4. About 20 per cent of all new clients called the 24-hour hotline to open an account immediately
using an express fulfillment package. In order to be sent this package, these clients also supplied the
DA with their date of birth and SIN, in addition to the information noted earlier. The DA would
immediately assign a client number, which created a customer information file (CIF), and instruct
the customer to mail their initial deposit cheque to ING Direct. The account would be opened when
the cheque was received, and interest would begin accruing at that time. Legal regulations also
required a client to send in an application form; upon receipt by ING Direct, the client could
withdraw funds from the account.

5. Periodically, direct mail was sent to potential clients to attract new customers. In 1999, two
million ISA application forms were sent to potential clients as part of five direct mail campaigns.
The direct mail requested clients to send in an application form along with a cheque for their first
deposit.

THE OPERATIONS GROUP:

THE OG CONSISTS OF 41 ASSOCIATES AND MANAGERS HEADED BY MR BELL. The

prime task of operations group was to provide back office support to the call centre and the other
functions in the bank. The group was responsible for various processing activities such as new
accounts, deposits on existing accounts, service requests, client statements and tax receipts, and
automated outbound correspondence.

STAFFING CHALLENGE;

1. BELL FOUNDED THE CHALLENGE OF COPING WITH THE GROWTH

WITHOUT INCREASING THE STAFF LEVELS.

2. SPACE LIMITATIONS PREVENTED A MASSIVE GROWTH IN

OPERATIONAL PERSONAL.

3. Bell and MacDonald decided to focus their initial efforts on the processes
associated with new clients. New client applications currently received the highest
priority for processing in the mailroom.
 4. Any improvement in the relatively simple and repetitive steps for processing new
applications was expected to significantly reduce the total workload.

5. A normal worksheet in the mailroom consisted of five eight-hour shifts. However,

employees generally worked only 6.5 hours per shift after allowing time for lure and
breaks. If an employee worked more than 44 hours during a week, governor,
regulations required overtime payment of time and a half. The normal hourly rate
for employees was $12 per hour, and fringe benefits combined with unemploymL
premiums increased the cost per employee to $15.60 per hour.

RECENT MAILROOM IMPROVEMENTS;

1. ING Direct's mailroom operations were almost exclusively paper-based. In the last two
years however, two steps had been taken to move the company towards automation in order
to speed the flow of mail through the system.

2. The first investment was a mail extractor. The purchase of the Agissar R/V5 had reduced
the time required to open daily mail by approximately four hours. The second investment
was a new machine, the NCR 7731, which encoded, scanned and endorsed cheques. This
machine was equipped with the software necessary to hold the image of each cheque for
later posting and clearing.

MAILROOM OPERATIONS;

1. During 1999, processing relating exclusively to new accounts engaged

approximately 50 per cent to 60 per cent of mailroom capacity

2. A further 20 per cent to 25 per cent of mailroom capacity was required for
preparation activities for processing of new and existing accounts. Preparation
activities involved opening and extracting the mail, sorting and checking document
quality, and scanning and encoding all cheques.
3. Processing of cheques for existing accounts engaged 15 per cent to 20 per
cent of mailroom capacity.

4. The mail was received Monday to Friday at 8:30 a.m. from Canada Post
through a contract courier.

MAIL EXTRACTION;

Once the mail was received in the mailroom, an operations associate (OA) fed the mail into the
extractor and pre-sorted the mail into the following six categories.

1. Applications and cheques from standard fulfilment and direct mail clients,

2. Cheques from express enrolment clients,

 3. Cheques from existing clients,

4. Free-standing inserts from other promotional efforts,

5. Marketing surveys, and

6. Loans.

1. The same OA also performed a preliminary verification on all cheques and applications to
ensure that there was no missing or obviously incorrect information. The first category,
standard fulfillment and direct mail clients represented about 70 per cent of new clients, did
not already have a customer information file (CIF); therefore, their applications would take
longer to process.

2. The second category was customers who had a CIF, which was created following a call to
the 24-hour call centre or through the Internet. About one-third of the new applications
with a CIF were Internet-generated

3. The last three categories were set aside to be handled by different groups. This process of
mail extraction and preliminary verification took approximately 50 minutes per 1,000
pieces of mail.

SORTING AND CHECKING;

1. Shortly after the extraction process was started, the applications and cheques (i.e.,
first three categories) were passed to OAs for further sorting and quality checking. Up to
five OAs performed these tasks simultaneously.

2. As many as two OAs dealt with the applications and cheques for fulfillment of new
clients, while up to three others processed cheques for existing clients.

3. Joint accounts took longer to process, as the OA would have to enter information for the
secondary or joint account holder who might or might not have a CIF. Applications
were grouped into batches of 50, and two calculator tapes of each batch were made to
verify totals.

4. During this additional sorting, applications underwent quality checking. OAs checked
for the client's SIN, telephone number, date of birth and deposit amount. They further
checked the body and figure of all cheques and the information relating specifically to
the various account types (e.g., customers opening a GIC account had to include the
term of investment). The mailroom supervisor also completed signature verification
by matching the signature on the cheque with the signature on the application. The
entire process of sorting and checking took six person-hours per 1,000 mail pieces.
5. Exceptions were separated during the Q&A process, prior to batching. All applications and
cheques not received in good order (IGO) - e.g., no signature on application, cheques stale-
dated, or travellers' cheque instead of personalized cheque - were set aside. All not in good
order (NIGO) items had to be returned to the client by mail.
 SCANNING AND ENCODING OF CHEQUES:

1. Cheques were next sent to an OA at the NCR 7731 image transport machine
for imaging and encoding.

2. The OA sent the cheque through the scanner but had to enter the deposit amount
of each cheque manually in order to encode it. The capacity of the NCR 7731
machine was 30 cheques per minute, although it took the OA about 7.5 minutes to
process one batch of 50 checks.

3. Manual verification of totals was also performed on the cheques. Running batch
totals were taken from the scanning machine and compared against the calculator
totals run during sorting and checking. If the totals balanced, the cheques
were taken to the stamping bin for deposit.
4. The NCR 7731 machine hosted a software program called INQUIRE, that held the
cheque image, and therefore allowed it to be posted later the same day.

5. Batches of applications were logged and placed in a tray for ClFing and posting.

CIFING OF NEW APPLICATIONS;

1. ClFing was the process of either creating or updating the CIF; this process
required the manual entry of all client data into the contact management system, called
EDGE.

2. If the client already had a CIF, then the OA would go to the look-up screen and enter the
client's first and last name and update the primary account holder's data. If the account
was a joint account, the OA would enter the secondary account holder's first and last name
to ensure that no duplicates had already been entered in the system. New or updated
client relevant data was also entered. Once the data entry was complete, the
"setup" code was indicated to instruct all DA's that the client's account was active
and ready for personal identification (PIN and password).

3. If the client did not have a CIF, then one had to be created prior to data entry. First, the OA
would input the client's first and last name to verify that no duplicates had already been
entered into the system. Joint account information was also entered, if applicable. Once the
data had been entered, the OA would switch to the "Profile" system (a generic banking
system used worldwide) to create the new account. The
OA would then enter the client's new CIF, the product type, the currency code.
Canadian or U.S. dollars, the relationship code (single, joint), and the branch code. Once
completed, the OA would transfer the application to another OA for posting of the cheque.

4. Process times for CIFing varied, depending on whether or not the creation of a CIF was
required and further on the type of account requested by the client. For single accounts
requiring the creation of a CIF (about 30 per cent of all new accounts), processing took
1.75 person-hours per batch of 50 applications. For joint accounts requiring the
creation of a CIF, about 40 per cent of all new accounts, processing times equalled 2.5
person-hours per batch of 50. Single accounts that already had a CIF (about 10 per
 cent of all new accounts), took 1.40 person-hours per batch of 50. Joint accounts
with a CIF (about 20 per cent of all new accounts) took 1.75 person-hours per
batch of 50.

POSTING OF CHEQUES;

After completion of all ClFing, the OA's would use the INQUIRE system to post the
cheques. The posting of cheques required three primary steps: (1) open the CIF on
the contact management system, (2) set up deposit details - term, amount, interest
management and maturity and (3) post transactions to client's accounts.
1. To post a cheque, the OA had to access the appropriate screen and then enter the cheque
amount and the account number of the client.

2. For new clients, external bank information held in the INQUIRE system was also linked
to the account holder. This step for new clients took approximately 1.25 person-hours
per batch of 50, double the time it took to process deposits for existing clients.

3. Posting for existing clients was much simpler, as the client's external bank information
was already linked. Thus, deposits for existing clients took half the time.

STAFFING LEVELS AND BATCH SIZES:

1. In total, nine OA's were involved in the mailroom operations process at various
times during the day. One OA was responsible for opening the mail, up to five
OA's were responsible for sorting and checking, and an additional OA was
responsible for the scanning.

2. Once these tasks were complete, these seven OA's would join the other two in the
CIFing and posting part of the process.
3. Nine OAs worked 6.5 hours, for a total of 58.5 hours per day. However,
only five of these associates worked in the preparation, including
extracting, sorting and checking, and scanning and encoding.

4. The remaining four OAs worked in another area of the operations group
until some applications were ready for CIFing and posting. Mail was
received at 8:30 a.m., and ClFing and posting were scheduled to begin at
10:30 a.m.

5. As a result, eight hours were subtracted from 58.5 hours, giving an

approximate total of 50.5 hours available for preparation and processing of
new and existing accounts/

PROBLEMS WITH THE CURRENT MAILROOM OPERATIONS:

1. During 1999, 110,000 new accounts had been created and there
had been 185,000 deposits associated with existing accounts. By the end
 of 1999, ING Direct's client base had grown to more than 220,000
accounts

2. Similar growth was expected for 2000, with a projection for 320,000
accounts by yearend. ING Direct's commitment to same-day processing
of both new accounts and deposits to existing accounts was becoming
increasingly difficult, given the volume of new accounts.

3. Typical daily mail volume ranged from 500 to 1,500 pieces, with about
35 per cent of receipts being for new accounts. As a result, heavier
volume days required the use of some overtime to maintain same-day
processing.

4. However, if the marketing department was conducting a direct mail

campaign, mail receipts could spike to over 2,000 pieces of mail per day
(see Exhibit 3). These campaigns entailed the sending a total of 400,000
pieces of mail over a 16-day period (i.e., 25,000 pieces per day). The
total promotion and advertising budget ran well over $10 million
annually.

POTENTIAL ALTERNATIVES;

1. Outsourcing was one option. ING Direct had experimented with the outsourcing of
its mutual fund accounts with a reasonable amount of success.

2. Increasing staff levels was a second option but not likely to improve the efficiency of the
system. The prime purpose of the current review was to seek ways and means
of avoiding this alternative.

3. Relaxing the same-day processing requirements was a third option, because

customers were generally not aware whether processing took place the same day.
However, same-day processing was an integral part of ING Direct's customer
service mandate. Given the clients' sophistication and the competition in the
marketplace, ING Direct had to maintain a high standard of service. It was also
unclear as to whether this option would solve the long-term volume problems.

CONCLUSION;

1. Bell's operations review had two main objectives. The first was to find
ways and means of coping with the short-term challenge of avoiding staff
level increases while meeting the operations demands of a rapidly growing client
base.
2. To this end, Bell believed the processing of new accounts could possibly be
improved. He also knew that once all operations processes had been reviewed,
a long-term solution might involve major investments

3. Bell and MacDonald had decided to work closely together on the operations
review. The previous week, they had agreed to analyse new account processing
separately and to share their insights on March 9. Bell was, therefore, anxious to
complete his review of new account processing within the next few days in
order to reduce overtime and begin examining other operations.