Think pig: Social Money President Scott McCormack promotes social-banking system SmartyPig.
WEST DES MOINES, Iowa — A 2008 start-up called SmartyPig has combined social networking and banking to offer a new way to save, and in four years has helped people reach almost $3 billion in savings goals.
The business was created by Des Moines natives Michael Ferrari and Jon Gaskell in 2008 as a high-tech way to encourage people to save for specific goals. Ferrari came up with the idea when his first son was born and he needed to save money for his son's college education.
He wanted to save for other goals in a program similar to the college 529 plan, and SmartyPig was born.
The program creates an online savings account for goal-directed purchases that can range from travel to consumer goods to a down payment on a house. Money can be transferred automatically from account holders' savings or checking account at their regular banks. Account holders can then use Facebook, Twitter and other social media to allow friends and family members to contribute to the goal. The deposits are FDIC insured.
Once the goal is reached, the saver can choose from a selection of merchant-provided discounts when making the purchase.
The idea caught on. By the end of 2009, it carried deposits of $212 million.
"They actually sort of jump-started the whole goal-based savings account thing," said Stessa Cohen, a financial services analyst for Gartner in Philadelphia. "A lot of banks in the U.S. and Canada are looking at providing that."
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Social Money, the company behind SmartyPig, thinks banks are far enough behind, and eager enough to connect with customers on social media, that they'll pay someone else to do it for them.
The company is now starting to sell the SmartyPig concept to banks, with the idea of letting them brand it themselves. That product was rolled out this spring. More than 115 financial institutions have approached Social Money about its GoalSaver program, Gaskell said, and the bank has already signed on ICICI, the second-largest bank in India by assets.
Social Money expects to announce new bank customers throughout the year, Gaskell said.
"We've basically taken the heart and soul of what we've learned at SmartyPig and pointed it at the scale," said Gaskell.
Gaskell won't say what Social Money makes each year, but he said the company has been operating on its own revenue for three years. In April, Social Money announced it would hire 35 new employees, bringing its total workforce to 50.
SmartyPig was part of a shift toward savings and personal financial management during the recession, Cohen said. People were ready to save money, when they may not have been three years earlier.
Like Kiva, the online microfinance organization launched a couple of years earlier, SmartyPig also tracks your progress for all to see.
"You can see how far along you are," said Nathan Robertson, 26, who's saving for a three-month trip to South America later this year. "It's a little bit more fun than just a regular bank account."
Robertson said it's easier to save with SmartyPig because he doesn't see the money. It's automatically deducted, and unlike with a separate savings account at a bank, he doesn't see it all the time and isn't tempted to pull a couple of hundred dollars out. He also shares his progress with friends occasionally, though he doesn't expect anyone to contribute.
"I'll throw it on my Twitter page every now and then," he said. "The idea is to share that with your family and friends, and keep up the social pressure to reach your goals."
Banks might want their own version of it, Cohen said, because it gets them into social media, a world that's been difficult for financial institutions.
Instead of just tweeting about their earnings or their latest charitable giving using Social Money, banks can get connected to consumers via Twitter and Facebook.
"They're collecting a lot of information that I give voluntarily," Cohen said. "I give a lot of information to Social Money about what I'm doing."
Banks can track their customers better and offer financial products to them when it makes sense for the customer. They can also make deals with merchants based on what consumers are saving for, and tailor advertising to them.
"This attracts non-banks who want to partner with Social Money, who say 'We want to know what people are saving for,' " Cohen said.
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