West Bancorp Inc. of West Des Moines is updating the model for high-yield online savings accounts by adding a social networking component that lets customers share information about their balances and savings goals.
Competing on interest rates makes online savings accounts a generic product, and the networking feature is more likely to attract and retain customers, the company said.
"The traditional approach to generate savings — by offering the highest yield — quickly turns you into nothing more than a commodity broker," said Tom Stanberry, West Bancorp's chairman and chief executive.
The concept was innovative when the Dutch banking company ING Group NV introduced its high-yield savings account in the United States several years ago. Since then, though, a number of companies have come out with similar products that typically differ primarily by their rates, which tend to be comparable.
West Bancorp's retail bank subsidiary is working with a Des Moines company called Smarty Pig LLC, whose Web site, which went live March 10, enables users to share details about their finances and offers West Bank savings accounts under the Smarty Pig brand name.
Besides sharing balance details, Smarty Pig lets users solicit donations from anyone who visits the site, and it encourages people to list their savings goals.
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%, though Mr. Stanberry said that rate would come down eventually; ING Direct's Web site said Friday its rate was 3%.
Mr. Stanberry said that when Smarty Pig's founders approached him a year ago looking for a bank partner, "what we seized on immediately is the concept of social networking combined with savings, combined with a reward at the end of the savings period."
Customers drawn to Smarty Pig "will certainly be more sticky than the rate-shopping deposits," he said, because the high rate is not the product's main appeal. West Bank has a stake in Smarty Pig, but Mr. Stanberry would not say how much.
Several companies are offering different types of financial services products linked to social networking sites, including loans and advice, though consumer response has been mixed.
Smarty Pig is similar to online peer-to-peer loan facilitators like Prosper Marketplace Inc. and Lending Club Corp., in that users solicit others for money, though in this case it is a gift rather than a loan. Other Web sites, such as those run by Wesabe Inc. and Mint Software Inc., offer financial advice, including suggestions about where to obtain banking products that might offer the best return; these do not act as a sales site for one banking company, as Smarty Pig does.
Mr. Stanberry said that just under half of Smarty Pig's account holders have made their accounts visible to the public, and of those, about 30% have received a contribution from someone else. He would not say how many people have opened accounts or how much money has been deposited into the accounts.
He said he was not surprised that the majority of Smarty Pig's users were not taking advantage of the networking component.
"We recognized from the beginning that for some folks, savings is a very personal part of their life," he said. "We also realize that others may be saving as a gift," and both are valid reasons to keep balances and goals private, he said.
Even in cases where people disregard the social element, Mr. Stanberry said, he expects Smarty Pig to hold its appeal.
"I think the attraction to Smarty Pig, beyond just the rate, is saving for the goal and receiving the reward when you do save for the goal," he said, specifically the discounted gift cards.
Smarty Pig's founders, Jon Gaskell and Mike Ferrari, said their company buys discounted gift cards from some retailers in bulk. They would not say how much they pay, but Smarty Pig offers customers gift cards for about 2% to 5% below their value when they are bought with funds in their Smarty Pig accounts, and the founders say they make on profit on those sales.
Mr. Gaskell said his company is more interested in helping people meet short-term goals, such as saving for a vacation or a flat-screen television. "We want to be the service that helps people reach those goals, not long-term goals" such as retirement, he said, though he would also be satisfied if customers use the site just to buy gift cards.
Smarty Pig may add other products, such as retirement accounts, but not for at least six months, Mr. Gaskell said.
Mr. Stanberry said the Smarty Pig concept initially faced resistance from regulators, who worried that allowing anyone to view account balances and make deposits could lead to fraud.
The regulators' biggest concern was ensuring that making accounts accessible to deposits from anyone did not give others "withdrawal access," Mr. Stanberry said, and West Bank went to great lengths to demonstrate that noncustomers' access to a Smarty Pig savings account is strictly one-way — for deposits only, he said.
George Tubin, a research director at TowerGroup Inc., a Needham, Mass., independent research firm owned by MasterCard Inc., said high-rate accounts are attractive to consumers but expensive for banks to offer, and that handing off some of the costs, such as marketing, will save West Bank money.
Mr. Tubin said the concept is most likely to appeal to children, who frequently receive money from friends and relatives. "I started thinking of little kids whose grandma gives them $10 on their birthday," he said. "Now we're more of an online society, so maybe this is the new method" to give people money.
The idea of soliciting donations is less compelling for adults, he said, though the other features, such as discounted gift cards or the interest rate, could prove popular. "It looks like each thing they offer has some appeal to some segments."
