Last week, the banking group BBVA bought a personal-banking startup called Simple for a hundred and seventeen million dollars. Simple is a banking service that bills itself as a kind of anti-bank—no overdraft fees, an easy-to-use Web site—with a relatively small, if loyal, user base. For people who had never heard of Simple, the deal raised questions about whether BBVA, which is based in Madrid but has operations around the globe, had made a wise decision.
At Simple’s offices, in Portland, Oregon, the co-founder and C.E.O., Joshua Reich, was contending with another question: How can a company that built a loyal following by lambasting annoying banking practices keep its soul after being bought by a big bank?
Simple is, essentially, a service to manage your bank account. A bank holds your money, but you use Simple to keep track it and to decide how to use it. But Simple feels like a bank, right down to the Simple-issued debit card. (For the actual banking part of its service, it previously partnered with Bancorp, where deposits are insured by the F.D.I.C., and will now rely on BBVA.)
The company started four years ago, when Reich, disgruntled about his own experience with banks—hidden fees, mistaken charges, and all the other items on familiar list of frustrations—teamed up with his friend and colleague Shamir Karkal. Their goal was to create a bank that, essentially, wasn’t god awful. They got some traction just by complaining about the status quo in tech circles and on Twitter. “People just loved the idea of a bank that didn’t suck and didn’t screw its customers over,” Karkal told the podcast Tomorrow’s Transactions, in 2012. In that first year or two, the company, then called BankSimple, had little in the way of actual products—just a bunch of tweets and a growing mailing list. Yet that was enough to inspire a kind of cultish following. They soon brought in Alex Payne, one of Twitter’s early engineers. Timing was on their side, too: although antipathy toward banks is, essentially, perennial, it was especially acute in the aftermath of the Great Recession and the Occupy Wall Street movement.
The problem was that using juvenile language to harangue existing banks isn’t actually a business model. Simple was able to partner with only one bank, Bancorp, and the buzz among consumers seemed to plateau; the company is hardly a household name. There was too much “focussing on how bad banks are instead of putting forward the great things Simple would do,” Penny Crosman, the editor of Bank Technology News, told me. Simple failed to corral an impressive number of customers, and profits remained elusive. (It currently has about a hundred thousand customers, and Reich points out that the company and its revenues have grown each year; a spokeswoman declined to say whether Simple is profitable.)
As Crosman noted last week, the purchase price means that BBVA paid about twelve hundred dollars a customer—far more than what banks are usually willing to pay in an acquisition (and a hundred and sixty-two times what Facebook has paid for WhatsApp’s users). “I can’t see how this is going to become a crown jewel for BBVA, the way ING Direct will for Capital One,” Crosman said, referring to Capital One’s purchase of the successful online bank ING Direct, in 2012. She worries as well that some of Simple’s talent will get laid off, because BBVA also has a capable design team and “a tech-savvy culture.”
Another question is whether Simple’s technology is truly game changing. Jim Bruene, an author and the publisher of the Online Banking Report, calls Simple “the Apple of banking,” with respect to design. It not only looks good but also aims to re-engineer how people interact with their money, for the better. On the Times’ Open blog, Andre Behrens wrote that Simple has done this by making banking feel like a game. The “aesthetics are just a baseline. Because what Simple actually wants to do is get you to play a game. The game is called ‘Master Your Finances,’ and you are Player 1.”
The flagship example of this is a feature called Safe to Spend. It subtracts your obligations—like upcoming bills, pending transactions, etc.—from your current balance, so that you know much money you can spend without falling into the red. Reich, a fast-talking Australian, picked up a marker and started sketching a graph illustrating typical earning and spending patterns. You get paid at the beginning of the month—high point on the graph—so you feel flush and you spend more freely. As the weeks go by, resources dwindle, and by the end of the month you’re eating peanut-butter-and-jelly sandwiches for lunch. The oscillations show not only what makes money so stressful but also why people have so much difficulty spreading their resources over time.
Reich has data suggesting that providing customers with useful information, real-time notifications, and features like Safe to Spend has had a positive effect on personal finances. At a conventional bank, customers between twenty-five and thirty years old have a savings rate of between three and five per cent. Simple customers in that same demographic, by contrast, are saving at a staggering forty per cent. (This may, in part, be owing to the fact that Simple users are a self-selected crowd of intelligent geeks.)
While the banking world is wondering whether BBVA should have acquired Simple, some of Simple’s users have a different concern: that Simple sold its soul. Seated on a gray couch in a stuffy conference room, Reich said that the unhappy feedback from customers so far has taken the shape of “I thought I was worth more to you than twelve hundred dollars,” or some variation on that theme. If banks are awful, and if Simple is willing to be absorbed by a bank, it stands to reason—well, you get the idea.
“In the world of suck-itude and banks, it’s a long list before you get down to BBVA,” Reich said. This might sound like equivocation, but it’s a fair point. BBVA is recognized within the industry for being more pro-technology than many of its competitors. In a recent op-ed for the Financial Times, the bank’s executive chairman, Francisco González, articulated why banks must get with the technology program: “Some bankers and analysts think that Google, Facebook, Amazon or the like will not fully enter a highly regulated, low-margin business such as banking,” he wrote. “I disagree. What is more, I think banks that are not prepared for such new competitors face certain death.”
Some observers, including Felix Salmon, of Reuters, have sunny outlooks about the acquisition. Simple will remain a separate brand, and it has been promised a certain degree of autonomy. But Reich notes that another attractive aspect of the acquisition is that Simple will have the financial firepower to expand globally and to offer its customers a suite of financial products—mortgages, car loans, home-equity lines, etc.
As to whether the sale to BBVA is cause for celebration, the company’s office in Portland shows almost no signs of whatever late-night revelry might have taken place following the announcement. Except for this: taped over an old-fashioned sign that reads, “WHAT DO WE LOOK LIKE, A BANK?” someone affixed a piece of white paper, so the sign now reads, “WHAT DO WE LOOK LIKE, A STARTUP?”
Above, from left: Shamir Karka and Josh Reich. Photograph: PRNewsFoto/Simple/AP.
David Wolman
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