Internet service partnership puts West Bank in line to attract deposits

Northwestern Financial Review, Apr 15-Apr 30, 2008 by Bengtson, Tom

West Bank of Des Moines, Iowa, has struck up a partnership with a new internet-based social network that may bring in millions of dollars in deposits. The $1.3 billion bank is the depository for SmartyPig.com, an online service that helps people save money for specific goals.

SmartyPig.com allows consumers to set up savings accounts that they fund through electronic transfers from accounts at other banks. SmartyPig account holders identify a savings goal and build toward it with automatic monthly deposits. In addition, the accounts can be set up to accept funds from other people. The idea is for relatives or friends to help loved ones reach their goals. A parent might set up an account for a child saving for a new bike, or someone about to get married might save for a honeymoon trip.

The accounts currently pay an interest rate of 4.3 annual percentage yield, and can be leveraged even further if payouts are taken in the form of gift cards through retailers such as Royal Caribbean, Pottery Barn, Best Buy and others, which add bonuses of up to 5 percent of the account balance. Payouts otherwise are paid through the SmartyPig MasterCard debit card, which can be redeemed anywhere MasterCard is accepted, in addition to ATMs.

"What really attracted us to this was the fact that it was the only internet-based service that combined the opportunity for a consumer to establish a savings goal, allow family members and friends to contribute to the goal, and when the goal is achieved, the saver not only gets the market rate of interest but additional rewards from attractive retailers," said Tom Stanberry, chairman, president and CEO of West Bancorporation.

SmartyPig is based in Des Moines and was launched in February. It is based on technology developed by DataVision, also based in Iowa. The web site operated in test mode for several weeks before going live to the general public in March. Account holders need to be at least 18 years old, although parents can set up accounts for goals their children establish. Savings goals can be set up for amounts from $250 to $100,000.

After setting up an account, Smarty Pig suggests a monthly contribution to be automatically deducted from the customer's regular bank account. There is a minimum initial deposit of $25 required, and users can deposit a maximum of $10,000 in a 24-hour period. If the account holder chooses to make their savings goal public, others can deposit money in their account for a fee of $4.95. For the accountholder, the service is free. Account holders can add a SmartyPig "widget" to their MySpace and Facebook pages so their contacts can contribute funds, if they like.

Stanberry said SmartyPig's founders, Jon Gaskell and Mike Ferrari, are well-known Iowa residents. "They came into the bank about a year ago and pitched the idea," Stanberry explained. "We were looking at internet account gathering at the time. We liked the concept and decided to go with it. We think banks are going to have to get involved with internetbased social networking."

Stanberry said the interest rate of 4.3 percent is an introductory rate, although he said he anticipates the bank will typically pay a rate at the high end of the market, something equivalent to the rate it offers on special certificates of deposit.

West Bank will market the service in the Des Moines area, leaving the national marketing to the SmartyPig staff. Although deposits can only come into a SmartyPig account from other financial institutions, Stanberry downplayed new competition the service might pose to other banks. "We did not get into this to pirate away deposits from other banks in our local market," Stanberry said. "We expect deposits to come from a much broader market, all over the country."

"SmartyPig's smart, simple and secure approach to saving teaches the benefits of good financial habits, reverses the 'buy now, pay later' mentality and makes saving money a fun, easy and rewarding experience," said Gaskell. "The uses for SmartyPig are endless. If you need to make a big purchase, or you simply want to save money, a SmartyPig account will make your savings work for you like never before, giving you more for your money."

"When I opened a college savings program for my new son, I wondered if similar programs were available to help me save for other goals like a family vacation, a home electronics purchase or home improvement," explained Ferrari. "Existing options were too restrictive, offered no incentives and certainly didn't make saving money a fun experience. We really wanted to change that."

Although the idea is to help people save toward specific goals they identify, accounts can be closed at any point, not just when the goal is met.

Gaskell said the service is intended to appeal to people in their teens and 20s, as well as younger parents. Gaskell said he expects others to use it as a way of giving nieces and nephews money for birthdays and holidays. Stanberry said, however, that he expects the service to appeal to people of all ages.