28, September 2008 Novelties
Do I Hear 4%? On This Site, Banks Bid for Your Cash
By ANNE EISENBERG IN some bazaars, vendors call out their prices, lowering them on the spot as they vie with one another for a shopper's business. That's the kind of competitive selling -- and possible good deals for shoppers -- that one new Web site hopes to bring to those looking to invest a nest egg in a certificate of deposit or other savings account at an attractive rate. The hawking will not be done by shouting vendors, but instead through a modern, electronic equivalent: automated auction software running on a Web site that gets its bidding orders from dozens of banks looking for business. When a customer comes to the site and asks for the terms of a C.D., the banks bid against one another via the software to win the deposit. MoneyAisle (www.moneyaisle.com) has signed up 108 small and midsize banks across the country, many of them eager to build their customer bases, especially in a time when some investors are withdrawing money from shakier investments in search of a safer harbor. When people come to the site shopping for a C.D. or a high-yield savings account, the banks engage in a fast-moving auction. A hundred banks may bid in the first round, 80 in the second round, 50 in the third, until the bank with the highest offer wins the auction. As the bids rise, the interest rates click past on the screen like numbers on the gauge of a gas pump. The customer can take the final deal or leave it. There's no charge. The automated software engine was developed by neoSaej, the company in Burlington, Mass., that created MoneyAisle. Each bank can adjust this software, based on goals or market conditions, for example. If two banks offer the same final rate, the software randomly picks a winner. The winning bank pays a fee to neoSaej only if it acquires the customer. NeoSaej expects to expand the auctions to other products, said Mukesh Chatter, the C.E.O. MoneyAisle's business model of competing banks certainly owes some of its inspiration to LendingTree.com, a company that matches up shoppers with mortgages and other loans under the motto, "When banks compete, you win." But MoneyAisle is aiming for a multitude of bidders going after each customer.
Typically, 80 or so banks compete for the customers at MoneyAisle in active bidding, Mr. Chatter said. Then the customer sits back and waits to see who wins. At LendingTree, the number of banks who compete is usually capped at four, and the bidding is not automated, said Allison Vail, a LendingTree spokeswoman. "We mail the consumer the loan offers, including rates, and they compare and select," she said. The software and hordes of competing banks that engage in automated bidding may prove attractive to some consumers, said Andrew W. Lo, a finance professor at the Sloan School of Management at M.I.T., who directs the Laboratory of Financial there. Engineering "There are many competitors trying to snap up the customer at MoneyAisle," he said, while LendingTree has far fewer competitors for loans. In search of competitive rates, I tried out MoneyAisle about three weeks ago, using the example of a six-month, $10,000 C.D. After a brisk, one-minute round of bidding involving 82 banks, I was offered 4.2 percent, well above the national average at the time of 3.15 percent. Last Wednesday, I tried again and didn't fare quite as well: the final offer was 4.02 percent, though still far above the national average of 3.19 percent. Bob Egan, chief analyst at the financial research firm TowerGroup in Needham, Mass., also experimented with MoneyAisle. "I got the best deal I could find anywhere," he said of one search. But to offer attractive rates consistently, Mr. Egan said, neoSaej, which started MoneyAisle in June, will need to draw into its system far more banks and customers. "If the bank population isn't large enough, and the bidding isn't aggressive enough, the consumer isn't going to get the best rate," he said. "And, likewise, banks may be willing to bid for consumers' business, but it has to be worthwhile for them, too." ISABELLA BANK in Mount Pleasant, Mich., is among the participants in MoneyAisle, said Greg Mapes, vice president. So far, its experience has been worthwhile. "It allows us to reach additional customers without the expense of building an Internet presence," he said. "We pay a fee only when we consummate a deal." Benjie Guion, chief financial officer at NewDominion Bank in Charlotte, N.C., also a MoneyAisle participant, said the system had other advantages. "At sites like Bankrate.com,"...