Mobile GPS-Based Rewards Get Poor Reception at SmartyPig

Location-based offers, a major selling point of mobile wallets, may have staying power, but one prominent company recently told the feature to get lost.

By using a phone's built-in GPS, businesses can identify nearby consumers and offer them cash-back rewards or discounts if they stop by to shop and pay using their phone. SmartyPig, however, has abandoned the location-based offer program it launched last year. The company, which provides an online savings account and a prepaid card, now gives its card users a flat 1% cash-back reward on spending.

When SmartyPig's location-based offers were introduced, "there was a lot of interest around geo-location rewards … [but] the rewards were limited, and it's a challenge, from a consumer perspective, to truly feel value in that type of product," says Mike Ferrari, SmartyPig's co-founder.

Other payment companies are committed to location-based offers, and observers say Smarty Pig's move isn't a broad indictment of the technology or the marketing concept.

Google, for example, has talked up its Offers Nearby feature in promoting its Google Wallet mobile app. PayPal, a unit of eBay, is also planning a location-based offer system for its digital wallet. It bought a location-based media company, Where, last year.

Part of the reason PayPal is committed to location-based offers is the size of its customer base, says Walt Doyle, the chief executive of Where. "You have to have a very large audience to target against" before merchants will express enough interest to provide enticing offers, he says.

SmartyPig and PayPal are "completely different animals," says Nicole Sturgill, a research director in the retail banking and cards practice at CEB TowerGroup. "Google Wallet and PayPal are pure payment vehicles, where SmartyPig's payment vehicle serves the purpose of the larger goal, which is incenting savings."

SmartyPig's main product is a social online savings account. Users can set savings goals for specific purposes, such as buying a car or funding a vacation, and share their saving progress on social networks. They can also request contributions from friends toward their goals.

"I have zero doubt in my mind that location-based offers have a big future," says James Van Dyke, the president and founder of Javelin Strategy and Research.

"The question is: could a company like SmartyPig go up against so many others, in particular others like Google?" he says. "I think this is just a matter of SmartyPig tightening their focus. I don't think this casts any doubt whatsoever."

Executives at Des Moines-based SmartyPig began considering location-based technology in August 2010. They implemented it a year later and shuttered it in mid-March.

"I suspect [the] majority of their customers today use a physical plastic card, which does not have the geo-location capabilities," says Celent senior analyst Zil Bareisis. "One percent cash back on all purchases is a simple proposition that is easy to implement and is easy for consumers to understand."

When it deploys a technology such as location-based rewards, SmartyPig says it expects that it may have to pull the plug at some point. "We can try things and, if they don't work, we can definitely make a pivot," says Ferrari. "We have the flexibility to do that because of the nimbleness of the technology team."