lending on the up across the world, one US retail bank has decided
to add a P2P element into its new savings accounts. Is this the way
forward for the rest of the retail banking market? Charles Davis
talks to the people at Iowa-based West Bancorp and online P2P
specialist Smarty Pig.
Many US banks have turned to online savings accounts as a low-cost
way to attract new customers, only to find that rate-driven
consumers are quick to chase the next high rate that comes along.
Competing on interest rates alone makes online savings accounts a
commodity product, and in an era of instant account opening and
side-by-side rate comparison, fickle savers can switch from bank to
bank in an instant.
Searching for a way to retain online savers, West Bancorp of West
Des Moines, Iowa, has teamed up with Smarty Pig to add a social
networking component that lets customers share information about
their balances and savings goals. The banking equivalent of
Facebook, MySpace and Friendster, Smarty Pig lets users solicit
donations from anyone who visits the site, and it encourages people
to list their savings goals publicly so friends and family can join
in the fun.
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In a conversation with RBI, Tom Stanberry, West Bancorp’s
chairman and CEO; Doug Gulling, executive vice-president and CFO of
West Bancorp; and one of Smarty Pig’s founders, Jon Gaskell, said
that the social networking application brings a new dimension to
online savings.
“We saw pretty quickly that the traditional approach to generate
savings turns you into nothing more than a commodity broker, and we
knew we wanted to do more than just pass money around,” Stanberry
said. “We see Smarty Pig as a way to talk to a whole new
demographic about savings, and about deepening the financial
relationship.”
Gaskell said that Smarty Pig was born from frustration with
existing online savings products when co-founder Mike Ferrari set
out to save for a planned vacation in Italy, and found nothing that
would allow him to quickly and easily open an online savings
account that would enable him to set savings goals and track
them.
“Mike and I had already set up ‘529’ college savings plans and
similar savings accounts, and we thought that setting up similar
plans for everyday sorts of goals made so much sense, but there was
nothing out there linking savings with the social networking
technologies that we were using,” he said.
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By GlobalData“Then we thought that if we added that social component, and then
added a series of retail incentives, partnering with travel
agencies and airlines and other retailers, and made it quick and
easy to open a bank savings account with a competitive rate, we
could open a whole new type of account.”
The result is a smartly designed, incredibly easy to use site that
makes saving a social activity. Smarty Pig users can access funds
in their accounts with a debit card, or purchase discounted gift
cards from retailers. Smarty Pig accounts offer annual percentage
rates of 4.23 percent, an eye-opening offer designed to gain
traction in the viral world of online savings.
Once users meet their goals, they can buy whatever they’ve been
saving for using a SmartyPig debit card, and will receive discounts
of up to 5 percent if they buy from SmartyPig partners like Royal
Caribbean, Best Buy and Home Depot.
Smarty Pig is similar to online peer-to-peer loan facilitators like
Prosper and Lending Club in that users solicit others for money,
though in this case it is a gift rather than a loan. The social
networking component is critical, as family and friends join
newlyweds, high school graduates and college students online to
share in saving towards down payments on first homes, college
tuition and other big-ticket items.
Gaskell said that the spring has ushered in a wave of new accounts
for high school and college graduates, a fine example of the way
that saving can meet social networking. Contributions are funded
through credit card charges with a maximum value of $500 and a
per-transaction processing fee of $4.95.
“Rather than ask for gifts, these new Smarty Pig customers ask
family and friends to contribute to their savings accounts,” he
said. “Perhaps they set a goal for a college expense fund, or a
down payment for a new car to head off to school.”
While other websites, such as those run by Wesabe and Mint
Software, offer financial advice, these do not act as a sales site
for one banking company, a tactic Smarty Pig said makes sense given
the dizzying array of online savings offers.
Visible to the public
Stanberry said that 52 percent of Smarty Pig’s account holders have
made their accounts visible to the public, and of those, more than
30 percent have received a contribution from someone else. He said
that the average saver sets a goal of saving more than $6,000 over
a 36- to 48-month period.
“These are significant savings goals, and we’re finding that our
savers are exceeding their expectations,” he said. “Adding a reward
for meeting your pre-set goal seems to really motivate customers,
whether they add the social networking component or not.”
Smarty Pig may add other products, such as retirement accounts, but
not for the foreseeable future, Gaskell said.
For the moment, West Bancorp is more than happy finding a new
segment of customers drawn not purely by rates, but by the social
network. “We always talk about stickiness in this business, and
customers drawn to Smarty Pig will certainly be more sticky than
the rate-shopping deposits,” Stanberry said. “We really appreciate
the more permanent relationship we are fostering with these
customers.”
Gaskell added that Smarty Pig has grown substantially in recent
months, despite the company having spent “zero dollars” on
advertising so far. The newest spike that the site has seen
involves consumers readying themselves for the Christmas season.
“All of our growth so far has been viral,” he said. “We’ve reached
out to the blogosphere, and that’s been about the extent of the
marketing effort, and we already have customers in 49
states.”
