Wednesday, February 3, 2010

Building Long-Term Deposits and Relationships Automatically

Over the past several years there have been a number of financial institutions that have built automatic savings programs where customers can set goals, establish recurring transfers between accounts to fund the goal(s), and track their savings progress.

One of the first programs developed was the Orange Savings Account from ING Direct which greatly simplified the process of opening new accounts for various savings goals. Following the success of the Orange Saving Account, SmartyPig was another program with that same goal in mind, making it easy for a customer to setup savings goals.

A customer can name their accounts, set the deadline for reaching their goals and even use an interactive calculator to determine the amount they will need to set aside each month. What makes Smartypig unique is that they added a social element to the mix . . . allowing other people such as friends and family members to contribute to the customer's goals as well.
The customer can even place a widget on their Facebook or MySpace page. Once the customer reaches their goal, they can either put all of your savings plus interest on a debit card, have it sent back to their bank, or receive bonuses by having the amount placed on a gift card from participating merchants like Macys, Amazon, Best Buy, etc.

While SmartyPig brings unique technology to its enterprise, it remains a one trick piggy (offering only savings accounts) and is a still-small Internet start-up. Being able to grow a savings account product from $0 to $500 million in deposits in less than two years is a phenomenal feat but its success can be assailed.

Full-service banks have begun to copy some of SmartyPig’s basic features and leveraged their own new savings features. For instance, U.S. Bank introduced the S.T.A.R.T. (“Savings Today And Rewards Tomorrow”) program in late 2009 in test markets, giving a $50 Visa gift card to a customer depositing $1,000 or more into a U.S. Bancorp money market savings account and establishing a monthly transfer from their U.S. Bank checking account. If a customer chooses to transfer between $.25 and $5.00 from their checking account into his money market savings account each time he uses his U.S. Bank debit or credit card, the S.T.A.R.T program counts those toward program term fulfillment.

In addition, customers maintaining a minimum $1,000 balance in the new savings account for 12 months will receive another $50 bonus, while U.S. Bank is offering another $100 bonus for establishing an automatically funding savings account tied to the bank’s standard checking account.

Building new products that encourage a long-term savings perspective supports the current trends toward more conservative money management while providing tremendous opportunity for additional cross-selling and relationship building. I fully expect more banks to develop both online and offline savings alternatives and to use these products as part of their onboarding and lifestage communication processes.

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