A three year-old fintech company has changed its business model to offer small and midsize banks location-based services — a mobile technology the biggest banks are only beginning to experiment with.

The startup, Larky, offers software that lets financial institutions send consumers discounts and offers from local merchants as they're walking or driving by. The company's original strategy was to pitch this service directly to consumers.

Few banks have rolled out geolocation services, which take advantage of banks' ability to communicate with customers over mobile devices and know their physical location. Wells Fargo and Capital One are testing location-based services — the former by identifying people who walk into branches, the latter with more standard retailer offers. The technology has the potential to help banks monetize their troves of data and keep them relevant to customers.

And for community banks, geolocation can play to their strengths as supporters of local businesses. But small institutions typically lack the resources to create and test this technology and the core banking providers they use have yet to offer services of this kind.

Since pivoting to a business-to-business model in August, Larky has signed up 11 financial institutions to deliver card-linked offers to customers when they are near participating stores. It is using geo-fencing so that an opted-in consumer receives a discount alert from, say, a pizzeria, on his smartphone when he's near the business. The prompt, which is akin to bringing a window display to the smartphone, includes the bank's brand.


One of the banks using the service is Chelsea State Bank in Michigan. It sees white-labeling the service as a means to drive adoption of its mobile banking app, to capture younger customers and to help cement stickiness with its current customer base.

John Mann, president of the $251 million-asset bank, said Larky's concept resonated with him after he met the startup's founders at a trade show in June. The bank's marketing slogan is "keep it local" and Larky is in the bank's backyard: Ann Arbor.

"It just fit," said Mann. "We really like the local approach."

The bank launched the service credit and debit cards, which it's billing as "Local Edge," in December. Customers can get deals from businesses like Biggby Coffee and The Beer Grotto as they walk or drive by.

There have been growing pains. Some local merchants were hesitant to sign up, having been approached by others soliciting discounts. Even so, Mann likes the program and hopes it will help the bank provide meaningful discounts and drive loyalty, adoption of mobile banking and business to local merchants.

"We're just getting started with it," said Mann.

Larky pitches its technology as a way to grow wallet share, loyalty and interchange revenue as it requires the consumer to use the issuer's card to redeem the discount.

"It's tough for small to medium banks to stay top-of-wallet," said Andrew Bank, co-founder of Larky.

Larky received accolades from media outlets like CNNMoney for its digital discount reminders program. But the young company knew it needed millions of users to repeatedly consume the app to have a shot of success, and "it wasn't happening," Bank said.

The company's strategic shift underscores an ongoing pitfall for startups in this field. At a time when consumers have a sea of personal finance apps to choose from, fintech entrepreneurs can find themselves having to make a decision: work with a bank with a strong brand name or potentially go bust, as Hearst-owned Manilla did in 2014.

Larky chose to make the change after a chat with Filene Research Institute, a think tank for credit unions that it is readying pilot work with the service. Over the next 12 months, Filene will monitor the use of Larky's technology at participating credit unions, observing which perks perform best and whether there is an uptick in interchange revenue.

"We will study what works and what doesn't work," said Tansley Stearns, Filene's chief impact officer.

For now, Larky requires bank customers to download a separate mobile app. It is in talks about integration possibilities with some of the vendors that smaller institutions depend on, so the rewards experience could work with banks' existing mobile apps.

Some card-linked offers — meant to improve on the Groupon business model — have failed. PerkStreet Financial, which partnered with banks to distribute cash back on debit purchases, closed shop in August 2013 because it ran out of money. Around the same time, Ally Bank rescinded a merchant-funded program it had it place. Consumer fatigue with offers and confusing redemption processes have discouraged uptake. And consumers tend to want to pay with the plastic that earns them the most points.

Still, Larky sees a missed opportunity. Analysts have recommended that banks crunch their data to become consumers' digital advocates. One way to do this is by delivering shopping advice; Larky is working on another.

Soon, Bank said, customers will be able to search for a product online and get pitched with a message like this: "You have a discount here, compliments of ABC Bank. Click here to use your discount."