Looks and Sounds Like a Bank, but Isn’t, Quite

If you’re setting out to reinvent basic savings and checking accounts, one way to get attention is to create a service that’s truly different.

In the last year or two, companies and services like Kasasa, PerkStreet and SmartyPig have accomplished this, offering interest rates and rewards that leave many bank products in the dust.

The companies haven’t stopped there, though. They’re also trying to appeal to consumers’ fury after the financial crisis by one-upping one another in the nasty things they say about big, old-fashioned banks.

“We couldn’t help noticing that millions of Americans were getting very little from their banks,” the PerkStreet Web site says.

“Why settle for just a measly interest rate?” asks the SmartyPig site.

“Our mission is to win the war against megabanks,” Gabriel Krajicek, chief executive of Kasasa’s parent company, BancVue, said in an interview.

And then there’s the blog for the coming BankSimple service, whose founders include a former McKinsey consultant and one of the early employees at Twitter. It includes headlines like “How Not to Suck at Bank Marketing.”

Them’s fightin’ words, or at least they sound that way. But behind the scenes lies an uncomfortable truth: it’s awfully hard to restyle a bank product without a bank partner. And every one of these start-ups works directly with banks that sit in the background and store the money.

So who are these start-ups, and why would any consumer (or bank partner, for that matter) want to work with them?

SAVINGS SmartyPig’s headline offering is a savings account that earns a 2.15 percent annual percentage yield, about as good as you can get at the moment.

There are a few catches, though. You have to allow SmartyPig to pull a deposit in from a bank account each month, and if you have more than $50,000 in the SmartyPig account, the rate falls to 0.50 percent.

The high rates on smaller deposits are tantalizing enough that SmartyPig has signed up 40,000 customers in just over two years and has about $250 million on deposit. But it is not a bank, and it needs somewhere to put the customers’ money. That’s where BBVA Compass, a bank based in Birmingham, Ala., comes in.

But what’s in it for the bank, which pays no more than a “measly” 0.75 percent to its own savings account customers? The bank likes having another source of deposits. The bank also learns about social media and Web strategy from SmartyPig.

Then, there are the cross-selling opportunities for things like mortgages. After all, SmartyPig asks users to name goals, say a down payment for a home. “A lot of times, people are saving for what I would call a bank product, but what they would call a house,” said Rick Claypoole, a senior vice president with BBVA Compass.

Here’s how SmartyPig is not like a bank, though. In April, it infuriated a number of customers when it lowered the interest rate on the larger accounts. Why? Because it doesn’t really want people leaving lots of money lying around indefinitely, unlike a bank.

SmartyPig’s only source of revenue is money it earns from retailers (not its partner bank). If you’re saving for a home improvement project, SmartyPig will encourage you to take, say, the $1,000 you’ve saved and put it on a Lowe’s gift card (though you can always transfer your savings back into a checking account someplace else instead of putting it on a card). Once you have that Lowe’s card, Smarty Pig will throw an extra $30 on it.

Lowe’s sells SmartyPig that gift card for less than $1,000, so SmartyPig makes its profit on the difference. The more people spend, the more it makes. And the problem with people who have six-figure accounts is that they’re generally not getting ready to go to Lowe’s with most of it.

CHECKING On the checking side, there is PerkStreet, which recently decided to offer 2 percent rebates via gift cards to customers on all debit card purchases where customers sign for their transactions or do not use a PIN. PerkStreet teams with the Bancorp Bank for basic checking account infrastructure.

Kasasa, which is a made-up word, is out to make life miserable only for the big banks. It helps smaller banks and credit unions offer checking accounts with interest rates of as much as 4 percent (or free music or rebates for customers to donate to nonprofit groups).

The pitch to banks is that these accounts bring in new customers with higher balances. Plus, account holders must make a certain number of debit card transactions each month to get the good deals, generating income from merchant fees for the bank.

Meanwhile, Kasasa takes a chunk of the fees that banks pay to it and channels them into a single marketing campaign promoting the Kasasa brand. “Kasasa is a brand for the product, not the institution,” said Mr. Krajicek of BancVue. “All the research we’ve done indicates that the community bank brand in general has pretty good street cred.”

Where customers doubt local banks and credit unions, Mr. Krajicek added, is in their ability to deliver products as robust as the ones from national banks. That’s where Kasasa is trying to play, and about 70 institutions have adopted its products, though hundreds more offer similar rewards checking products from BancVue.

Another area where banks tend to fail is in technology, according to the founders of BankSimple. While the service isn’t running yet, the idea for it was born in part out of the irritation that Josh Reich, a co-founder, had with his inability to reconcile transfers between various accounts as he and his wife earned and spent money and paid their bills.

He was also seeking a system that would automatically push and pull money between debt and interest-earning accounts at precisely the right moments. Ideally, he would pay the lowest possible amount of money toward fees or loan interest while earning the highest possible amount on balances.

That’s not the kind of account that most banks want to offer, though, given that they’ve earned an increasing amount of money on fees from overdrawn accounts in recent years. “There’s a fundamental misalignment between what customers want and what a bank wants,” Mr. Reich said. “Banks want you to be confused. They make more money by making people confused.”

Mr. Reich promises a spartan checking account Web site at the start, with a mobile application that will notify you when you’ve swiped your debit card. He and his partners are betting that a no-fee, no-worry account that moves money efficiently will trump the not necessarily world-beating interest rates that BankSimple plans to pay when it introduces its service later this year or in 2011. “What they gain from us is not getting hit by fees and peace of mind that the bank is aligned with their interest,” he said.

Mr. Claypoole of SmartyPig’s partner, BBVA Compass, finds this kind of talk a bit distasteful. “When the laughter dies off, where’s the substance?” he said of the companies that are poking fun at banks. “One reason people go to SmartyPig is because they don’t want to go to a bank. But what’s one of the first questions they ask after they’ve had their laughter? Whether it is F.D.I.C. insured.” It does have the insurance, by the way, and PerkStreet and Kasasa accounts do, too.

Indeed, BankSimple is in search of a bank partner, and F.D.I.C. protection, though it’s not clear how many institutions will want to work with the company given its bombast. BankSimple does not want to be a bank itself, because acquiring a charter takes years, many millions of dollars and lots of lawyers, the opposite of the lean, service-focused start-up it is striving to be.

Green Dot, which offers reloadable prepaid cards to people poorly served by traditional banks, began just over a decade ago with a similar chip on its shoulder (and a bank partner in the background). It still promotes the virtue of its product vs. a traditional checking account. Green Dot does not require a background check (unlike a bank account) and doesn’t let you spend more than you have (unlike many bank accounts).

But earlier this year, as the company prepared to go public, it had become worried about its ability to control costs related to its bank partnership and to quickly introduce new card products. It needed more flexibility to pursue ideas for expansion, too. And so, Green Dot did the unthinkable.

It made an announcement that it was acquiring a bank. And it wouldn’t surprise me if some of these other start-ups also became banks one day.

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