A three year-old fintech company has changed its business model to offer credit unions location-based services — a mobile technology the biggest financial institutions are only beginning to experiment with.

The startup, Larky, offers software that lets CUs send consumers discounts and offers from local merchants as they're walking or driving by and the messages includes credit union branding. The company's original strategy was to pitch this service directly to consumers.

But the Ann Arbor, Mich., startup decided to focus on white labeling its services to financial institutions to gain distribution. And to reach credit union prospects, Larky decided to partner with the Filene Research Institute late last year.

The think tank for CUs has been promoting the Larky services for a discounted rate in recent months. And over the year, Filene will monitor the use of Larky's technology at participating credit unions, observing which perks perform best and whether there is an uptick in interchange revenue.

"We will study what works and what doesn't work," said Tansley Stearns, Filene's chief impact officer.

Since the pivot to business-to-business and partnering with Filene, Larky has signed up 11 financial institutions to deliver merchant-funded offers to members or customers when they are near participating stores.

Some CUs Get Onboard

Christian Financial CU, Lake Trust CU, Partners FCU and Tuscaloosa CU are some of the credit unions live or readying to go live with the mobile app.

All will get to try out a technology meant to make their brands more top of mind. Indeed, Larky uses geo-fencing so that an opted-in consumer receives a discount alert from, say, a pizzeria, on his smartphone when he's near the business. The prompt, which is akin to bringing a window display to the smartphone, includes the credit union's brand.

Few financial institutions have rolled out geolocation services, which take advantage of companies' ability to communicate with customers over mobile devices and know their physical location.

Wells Fargo and Capital One are testing location-based services - the former by identifying people who walk into branches, the latter with more standard retailer offers. The technology has the potential to help financial institutions monetize their troves of data and keep them relevant to customers.

And for CUs, geolocation can play to their strengths as supporters of local businesses. But small institutions typically lack the resources to create and test this technology and the core banking providers they use have yet to commercialize services of this kind.

Immediate Gratification

Credit unions say they are also seeing the technology as part of a strategy to pleasantly surprise people with immediate gratification.

Certainly, Tuscaloosa CU sees white-labeling the service as a means to distinguish itself in the community.

"If you want to do something different, you can't go where everybody else is going," said Tommy Cobb, chief executive of the $60 million Alabama CU and a member of Filene. "We are creating a cool factor for the credit union."

Tuscaloosa plans to go live with Larky in mid-January. At launch, discounts can be accessed when a person tells the merchant he's a CU member or shows the discount prompt on his smartphone. Down the road, the CU would like to see the technology work seamlessly with its credit or debit cards.

Burbank, Calif.'s Partners FCU - which serves the Walt Disney Co. - also inked a deal with Larky. It sees the mobile app as a means to add value to the membership and to help the institution become top of smartphone as it continues its work to pursue unique ways to engage its members or woo new ones.

Like Tuscaloosa, the $1.3 billion-asset institution discovered the program through Filene and quickly got onboard. Partners, after all, had been seeking a couponing app to digitize what had been a list of discounts printed on a physical magazine.

Mike Terzian, chief marketing officer at Partners, said the institution also sees the app as a way to help keep the brand top of mind and drive engagement even when plastic cards go out of style.

But to start with, Larky pitches its technology as a way to grow wallet share and loyalty at the moment a person may most require a reminder.

"People forget to use [discounts] at the right time and place," said Andrew Bank, co-founder of Larky.

"We wanted to create an experience like a lark where [people] walk around town and are surprised with unexpected discounts."

For now, Larky requires credit union members to download a separate mobile app. It is in talks about integration possibilities with some of the vendors that smaller institutions depend on, so the rewards experience could work with financial institutions' existing mobile apps.

Some digital offers - meant to improve on the Groupon business model -have failed. PerkStreet Financial, which partnered with banks to distribute cash back on debit purchases, closed shop in August 2013 because it ran out of money.

Around the same time, Ally Bank rescinded a merchant-funded program it had it place. Consumer fatigue with offers and confusing redemption processes have discouraged uptake. And consumers tend to want to pay with the plastic that earns them the most points.

Missed Opportunity?

Still, Larky sees a missed opportunity. Analysts have recommended that financial institutions crunch their data to become consumers' digital advocates. One way to do this is by delivering shopping advice; Larky is working on another.

Soon, Bank said, customers will be able to search for a product online and get pitched with a message like this: "You have a discount here, compliments of ABC Credit Union. Click here to use your discount."

Partners FCU also sees an opportunity to use the technology to pitch its own services down the road. Perhaps the FI could shoot over an offer for a preapproved loan while someone is shopping for a car on an auto lot, for example.

"That's our roadmap," said Terzian. "It's adding value in appropriate ways."

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