In a world where online banking has become somewhat boring, SmartyPig seems to be livening things up a bit by announcing a major change to their online banking practices on a normal basis. Last month, SmartyPig increased their online savings account rate to 1.75%, demolishing any competitor even close to them and on Monday, SmartyPig announced that they would be leaving Des Moines based West Bank and joining ship with BBVA Compass.
Strictly from a current SmartyPig customer perspective, the move means absolutely nothing, at least in the short term. All deposits will be assumed by BBVA Compass on August 1st 2010, and each SmartyPig customer must consent to the shift of their money from one bank to another. Any customer that declines to have their money shifted will simply have their account closed. If you select no, you have until July 19th to close your savings goal and your SmartyPig account, otherwise your account will be locked, your goals closed and your account balance automatically transferred to your savings/checking account on file.
So why would SmartyPig do something like this? Well the reason is simple. As part of West Bank, SmartyPig was growing too large to continue operations. As more and more accounts were coming in, SmartyPig was becoming a larger part of West Banks assets. The bank was simply to small of an operation to handle the business that SmartyPig was continuing to bring in and when a small bank holds a large amount of deposits, the FDIC watches them a lot more closely. In order to expand operations, SmartyPig needed to find a more prominent bank so it could not only gain a little branding but expand it’s product base. And according to the press release that SmartyPig launched on Monday, that’s exactly what they intend to do.
SmartyPig also announced that within the next 90 days, you will be seeing new products and features which should help clarify why this move was necessary. A bank like BBVA Compass, which stands for Banco Bilbao Vizcaya Argentaria, will be able to offer support to an institution like SmartyPig and currently, BBVA Compass is the 15th largest bank in the United States (based on deposit market share). Headquartered in Birmingham, Alabama, BBVA Compass has acquired their fair share of failed and shifted banks in the last three years, and with the addition of SmartyPig, expect them to be well-known name in the very near future.
As interest rates continue to drop, or at least stay the same, SmartyPig will dominate the savings account portion of the online banking world. When SmartyPig announced they were increasing their savings account rate to 2.15% APY for balances under $50,000 and 0.50% APY on balances over $50,000, I was the first to question the decision. I’m still not convinced that was the wise play but the move from West Bank to BBVA Compass is undeniably the right decision if SmartyPig intends to become a serious player in the personal banking universe. The next six months are going to be crucial in building customer accounts while expanding the SmartyPig brand because if the economy picks up faster than expected, that could mean bad news for the future of the pink little piggy.
Published or updated October 13, 2010.
{ 2 comments… read them below or add one }
“if the economy picks up faster than expected, that could mean bad news for the future of the pink little piggy.”
Why would it mean bad news?
Norman
SmartyPig is able to offer higher than normal interest rates because of their business model. The way SmartyPig makes money is based on the commissions they receive from merchants that take part in their gift card program. Their profit has absolutely nothing to do with the Federal Banking System, so when banks cannot offer high interest rates, SmartyPig can flourish.
However, if and when banks bounce back with higher savings account rates, perhaps around the 4%-5% marks we saw a few years ago, the SmartyPig business model will not allow them to beat those rates as convincingly as they do now. SmartyPig will be able to offer a similar interest rate but if that happens, their platform becomes less attractive. Their biggest sell is their higher than normal interest rate, which won’t last forever.