For the first time in its short six-year history, ING Direct's U.S. division showed declines in both total deposits and customer accounts during third quarter, the latest data available (see the table below, originally published in our year-end industry forecast, Online Banking Report #137). Although the runoff was relatively small – $600 million in deposits, or about 1% from the peak, and 150,000 accounts, or about 4% from the peak – it's a clear indicator that the entry of Emigrant Direct, HSBC Direct, and especially Citi Direct have taken a toll on the direct banking giant.

Looking at quarterly results below, you can see that average account balances began declining in Q1 2005, as some of the hottest money, large balances held by extremely rate-conscious consumers, moved to better paying accounts; still, total deposits and customers continued to grow rapidly through 2005 and into 2006. However, in the second and third quarters, deposits began to flatten as the number of accounts grew only 230,000 compared to 560,000 in the same period a year earlier.

ING Direct appears to have deliberately slowed growth by maintaining deposit rates 50 to 100 basis points lower than the new entrants. With its marketing muscle, the bank could choose to grow deposits if it closes the rate gap. The bank's new checking account, gradually rolling out to current customers, may help stem the tide, with higher rates for larger balances (see coverage here).

Table: ING Direct Deposit and Customer Totals: 2000 to 2006 (click to enlarge)

PDF version of this table here.