The conference is now being recorded. Good morning, ladies and gentlemen. Thank you for waiting, and welcome to the ING media call. At this time, all of the participants are in the listen-only mode. After the presentation, there will be an opportunity to ask your questions. I would now like to hand the conference over to Mr. Ralph Hamers. Go ahead please, sir.
Thank you. Welcome. Thank you for joining us on this call this morning. First, I'd like to take you through the highlights of the announcements that we made this morning. Thereafter, I will open the floor for questions and answers. For that, with me here are Patrick Flynn, our Chief Financial Officer, and Roel Louwhoff, our Chief Operation Officer. Basically, you can ask questions to them as well. This morning, we announced that ING is taking the next step in digital banking to improve customer service and enhance operational excellence. Basically, in today's digital world, change has become a constant factor, and it's happening faster and faster. Customers are using a range of channels for their banking needs, whether it is mobile, internet, the branch, or the call center.
We see customers moving quickly to the digital channels, at a pace that is not so much evolutionary anymore, but revolutionary. In the Netherlands, the number of interactions via mobile is now higher than via internet. Currently, ING Netherlands uses different IT systems for mobile, for the websites, for the call centers, and for the branches. As a consequence, not all customer information is available consistently and not available real time in each channel. By moving to what we call an omni-channel approach, customers will be able to do all their banking digitally and experience a consistent service regardless of the channel they choose. The benefits that customers will experience are threefold.
The first one being that if you are able to switch seamlessly without loss of data or information, you basically can open the process on the website and end that process in a branch, for example. For example, a question that a customer addresses to the call center will also be visible in the branch systems. As I said, if a customer fills out an online mortgage calculator and then calls a mortgage advisor, the advisor will know exactly what the information is that the client has already filled in, and therefore, can take the client directly to the next step. That's the first benefit. The second benefit is that almost all banking transactions are digitally handled. Anytime, anywhere, any device. An example of this will then also be that clients will no longer need to go to the branch to pick up their PIN code.
In addition, as a third benefit here, we continue to invest in our local advisory capabilities by bringing the expertise in our branches closer to our clients. Basically, we recognize that there is certainly still a need for human contact. Certainly on the advice side to consumers and to the SMEs. Therefore, they do need to have a conversation either at the office or over the phone or via the internet or Skype. Basically, this way, as a result, customers can be offered a more relevant, more timely, and more proactive service and advice. That's what's behind this program. To support this omni-channel approach and to increase the security, the efficiency, and the agility of our IT systems and operations, we will be making an additional IT investment of EUR 200 million.
These investments are aimed at delivering a more simplified IT landscape with standardized systems and highly automated processes. That's kind of why we do it, how we improve service for our clients, and how do we make sure that a client moving from one channel to the other, that that is seamless. Unfortunately, as a result of further digitization of the ING banking services and the reduction of IT systems that this will deliver, the automation of the processes that is necessary. Unfortunately, this means that in the end, we need fewer people. We will work with fewer jobs to deliver the same work, therefore our workforce in the Netherlands, the direct workforce in the Netherlands, is expected to be reduced by around 1,700 full-time employees. FTEs, as we call it. It's a very technical term. We reduce that over the next three years.
In addition, ING will reduce the number of positions employed by external suppliers by around 1,075. To answer the question as to where are these jobs currently that are being reduced, the impact of this change program will mainly be felt at the headquarters of ING Retail Banking in the Netherlands, the back offices, basically the operations environment, the call centers, as well as the IT departments. The workforce reduction is primarily a result of the further digitization of our services, the operations, the optimization of our processes. Resolving customer requests or complaints directly without transfers between departments which will lead to a much higher satisfaction. Working with one system across all channels, and a more efficient and effective way of working at the headquarters of our Dutch retail organization by working in small multidisciplinary teams rather than large teams focused on a specific channel.
We're combining these teams and making them more multidisciplinary. The workforce reduction in IT is primarily the result of the reduction in the IT systems, and the increased number of automated processes. As is custom and as we have always worked with the unions, we will support the involved employees in finding suitable solutions for them, either by helping them to find new job opportunities inside or outside of ING, by helping them to start their own businesses, and by offering education and training in preparation for another career. This is part of our social plan, as we call it, we will continue to help our employees to have a good future as well.
In the past, we already built a good track record in this regard, given the fact that we have a good track record on that, we continue our current social plan for today's announcement. On the financial side, we will book a pre-tax redundancy, a provision of EUR 320 million, and that's what we will book in the fourth quarter of 2014. The total gross cost savings, in addition to the existing running programs, will amount to approximately EUR 270 million. That will kick in as of 2018. These are the headlines, I can understand that you may have some questions. With that, I would open the floor for questions.
Thank you, Chairman. Ladies and gentlemen, we are now starting your question and answer session. If you have a question or remark, please press star one, please, now. Star one for your questions and remarks. The first question is from Miss Maud van Gaal from Bloomberg. Go ahead please, madam.
Hi. Good morning. I have two questions. I was wondering, it seems in a way this is cutting out some legacy from the systems, what has been built up over the years. Is that true? Then I'm sort of wondering why is this announcement made only now and not It seems like something you could have seen coming in a way. Is it fair to say that this is cutting out legacy more than it is investing in the latest app, for instance? Also, I'm wondering, can you remind me what were your targets for the retail bank in terms of ROE? I seem to recall that that was already higher than the targeted range. Thank you.
Okay. Maud, I think it's a very good question that you raised, the first one. The second one, I will give to Patrick. The first one, if you see how a bank has been built in the past, clearly, we had the branches and we had branch IT infrastructure and applications to support the work in the branches. We developed call centers, we had specific technology supporting the call center staff. We developed internet, we built specific IT around internet. In the end, we have mobile now as well. Basically, we have indeed been building layer on layer from an IT perspective in order to ensure that we could rapidly service our clients in these new developments, in these new channels.
Clearly what we see now is that clients expect the same service and the same level of information and the same knowledge, whether they interact with us through mobile, internet, branch, or call centers. Therefore, it is imminent to do it now and to basically take the next step and move away from the more layered IT environment to a one IT environment for all channels. That will certainly enhance the customer experience. With that, I will give the second question to Patrick. Patrick?
Yes. Good morning, Maud. The ROE guidance we've given is respective to the whole bank. That was 10%-13% range. The year to date, we were at about 11 at the end of Q3. We're going to put this one in operating expenses in Q4. This on its own, you can do the math yourself, but it will have a negative impact of about 70 bps, just under 70 bps on the ROE for the full year. With this, we're still hoping to be in our target range of 10%-13% for the full year.
Okay. Next question.
The next question is from Mr. Jacco de Zwart from The Telegraph. Go ahead, sir.
Yeah. Good morning. I was wondering if you could have, maybe in a different presentation separately by email, the numbers behind the moving from branches and internet to digital banking. The number of branches that are going away. I suppose that you won't keep open all the branches that you have right now. That's the first question. The second is what facilities will you build in for More non-mobile consumers and people who might not be able to communicate through mobile devices or maybe even in Dutch.
Yeah. Well, Jacco, all of our services are available in Dutch, let there be no mistake.
No, I mean the people that don't speak Dutch.
Oh, the people that don't speak Dutch. Okay.
You have traditionally a large, let's say, population, a client population from the Postbank.
Yeah.
I don't know if all these people are so familiar with the mobile device and all your services.
Good.
I see a lot of those people standing in line in front of the ING offices in street.
Coming back to your first question on traffic, basically, I don't have the numbers here readily available. What we have seen over the last It took about eight years for internet in terms of transaction traffic to take over from the branches. It took about two to three years for mobile to take over in terms of number of interactions between client and the bank, to take over from internet. You see that the change is happening more rapidly than ever before, and that's why we talk about a revolution here. If it comes to the number of branches, honestly, we have 261 full-fledged branches, and as a consequence of this, we're not necessarily closing branches. This is not the purpose here. The purpose here is actually the other way around.
The transactions can still also in the future be performed in the branch through the digital channels available in that branch. The branch role will become even more a role of value-added services. To give advice to our consumers on mortgages, to give advice to the SME clients on financing and investment. Basically, the branch role will further change, and this will not necessarily lead to a lower number of branches.
Good. Can you give me maybe separately by email, summary the numbers that you're going on?
Yeah, we can absolutely see what we have to see whether we can support you on that. Yeah.
Thank you.
Yeah. Okay.
The next question is from Mr. Ivo Bökkerink from Het Financieele Dagblad. Go ahead, please, sir.
Yes, good morning. Thank you. I have a follow-up question about the ROE. What is the ROE of Retail Banking in the Netherlands right now, and what will be the impact of the cost savings when they're coming in fully in a couple of years? The second is about the additional investment of EUR 200 million. What is it in addition to? Basically, what is the normal investments that you do in IT?
Yeah. Well, I understand these questions. I will give Patrick to answer them. The purpose of the program is to enhance the customer experience. As a consequence, we will save some cost, but it's truly to enhance customer experience because this is what customers ask from us. Patrick, on the ROE.
Well, we give in the quarterly results a breakdown of ROEs by segment. In the Q3 results, we also show the ROE for retail banking, for the Netherlands, Belgium, Germany separately. However, the target is for the full bank overall, that's the 10%-13% range, and that's the relevant number. Why? Because you've got to remember, we also have a corporate line, which is negative. You can't look at any one segment in isolation. You need to look at the total, and you have to bear in mind a significant amount of cost goes into the corporate line. It can be misleading to look at the ROE of the segment on its own without taking account of corporate line. The ROE that matters is the total ROE for ING Bank in aggregate. That was just about 11%.
Like I said, this charge will bring it down by 70 basis points. Overall, we're traveling at around 10%-11% at the moment.
Okay, next question.
The next question is from Miss Maud van Gaal from Bloomberg. Go ahead, please.
Yes, hi. I had a follow-up question. I was looking at, I think, a presentation you gave in London last year, and it was also said at the investor day. There was this chart on how reduction of IT complexity was a key priority in the Benelux.
Yeah.
I was wondering how these announcements made today, how that will move up Benelux on the chart.
Yeah, I think, Maud, it was during the strategy day, we had a chart where we basically indicated two axis, IT efficiency and IT effectiveness, where we saw that our activities outside of the Netherlands, where we are a direct bank, that we're basically best in class from that perspective. In the commercial bank, given the program that we're currently running, the program that we call CDTom, that we're moving into the direction of best in class. In the Benelux, the current programs that we had in the Benelux, called Case for Change and Belgium Transformation Program, that we would only be moving to the mid of the pack. We already announced in March that we needed to develop additional plans once we have finalized the plans currently in implementation in the Netherlands and in Belgium to move further.
This will indeed bring us closer to the best in class. You should also realize that best in class is a moving target in itself. For the moment, we feel that we're certainly making improvements in heading there, but you never know where competition is going from that perspective. Now, the real underlying point still is that moving from a multilayer IT approach with different channels using different IT environments, that does not lead to a seamless experience for our clients, and that moving to one IT environment actually will. The starting point is still how do we ensure that the clients have the best experience with the bank. The solution is, one, moving to a much simpler IT environment and more automated processes, so that will get us much closer to best of class.
Okay, thanks.
The next question is from Mr. Ivo Bökkerink from Financieele Dagblad. Go ahead, sir.
Yeah. I guess you forgot my question about the EUR 200 million. I would like to know what it is in addition to. What are the basic investments in IT? What have they been in the last years, to get a feel of how much you are investing extra?
Change over the bank approximately.
The total change budget that we have over the total bank is approximately EUR 900 million, and that's IT, that's process change incorporated in there. Since it's a mingle, because we're doing things jointly, that's approximately in mind you can use.
That's for the total bank. That's not just the Netherlands, not just retail. The ING Bank as a whole, it's retail, commercial banking, it's total bank.
Okay. You don't have a number for the Netherlands in detail.
Well, you see that some of these processes we use for more countries as well, some of these changes. To make it specifically for the Netherlands, now it's EUR 200 million, and this investment goes specifically to the Netherlands, the EUR 200 million.
Right. Okay.
The following question is from Mr. Chris van Aalten from the Press Teams. Go ahead, sir.
Good morning. I was wondering how many of your 8.1 million clients don't use digital bank services and what services they can rely on in the future as they use only paperwork like they used in the old days.
At this moment in time, from the 8 million, around 5.5 million use either digital and/or telephone banking. That's increasing very rapidly, and we see the channel moving much more towards indeed digital and mobile. As Ralph already alluded to, we are continuing to keep our branches in the same sort of number as we have them today to really make sure that we can serve all of our customers through the channel that they choose at any moment in time.
Will they be charged more for using still the old paperwork?
No, we have no intention to change that with this program at this moment in time.
Thank you.
The next question is from Mr. Marijn Welling from ANP. Go ahead, please, sir.
Hello. Good morning. My question has already been answered, no need. Thanks.
Thank you. Ladies and gentlemen, if there are any further questions or remarks, please press star one now. Star one for further questions or remarks. Go ahead. We have a question from Ms. Ellen Proper from Dow Jones. Go ahead, please.
Yes. Thank you. Good morning, all. It doesn't seem like there will be a reduction of jobs at the front office. I'm wondering, what is the ratio of the number of employees who are in direct contact with the customer in comparison to the number of employees at entire bank in Netherlands? Thank you.
Could you repeat your question, the last part of the question?
Yeah. I was wondering what the proportion of people, sort of front officers, the people who are in direct contact with the customer, what proportion of that is in comparison to the entire bank in the Netherlands?
The exact number there, I don't know. The fact that you said, well, this doesn't affect people in the front office, that's true if it comes to the advisory services in the branches. For example, we do think that people in the call center are front office people. They provide excellent customer service. They work day in, day out to service our clients. We do regard call center people as our front office. Regretfully, given the fact that more and more people get the same information out through internet and mobile, they do call our call center less often than in the past, as a consequence of that, basically, we use less and less call center officers.
Okay. Can you give the exact number of the people at the call centers who have to leave ING?
Well, we don't have them here readily available.
Is it a big proportion of the 1,700 jobs or?
We'll look into that to see whether we can give you that detail, because we don't have it here. If you call later with the PR department, then they will pick it up for you.
Thank you.
Ladies and gentlemen, if there are any further questions or remarks, please press star one now. Star one for further questions or remarks. Go ahead. We have no questions further at this time, Chairman.
Okay. Thank you very much again. To wrap up the call, in order to improve the customer experience across the different channels that they're going to use and improve the operational excellence, we today announced that we will take measures to expand digital banking, strengthen local advisory capabilities in the branch network. I think it's important to take both messages here. In order to improve the IT environment, we will invest EUR 200 million extra to increase the reliability, the efficiency, and the agility of our IT systems in the Netherlands. The step that we announced today will lead to significant cost savings, because unfortunately, working in a more efficient way with automated processes and with simpler IT systems will lead to working with less people. Regretfully, this will lead to a fewer number of jobs going forward.
We will do our utmost to build on our track record of helping our employees that are affected, to find new job opportunities either within ING or outside. With that, again, I would like to thank you for being available so quickly and on short notice, I wish you a pleasant day. Thank you very much.
Ladies and gentlemen, this concludes the ING media call. Thank you for your attention and for attending. You may now disconnect your line. On behalf of ING, thank you.