Like many people involved in fintech and digital strategy, I was very excited and supportive when Simple was first announced. I always felt it could carve out a successful niche in banking, whether it partnered with a bank (or even several), established its interface as a white label offering, or took the time and considerable effort to get a full banking license.
What the team at Simple likely discovered is what everyone in the industry already knew: it's hard to be a bank (or even a payment provider). It's even more difficult to start a de novo bank with the capital requirements and regulatory burden. This is the case even for a branchless. digital-only de novo. So their pivot to partner with Bancorp Bank made perfect sense.
Simple's journey in building out a savings-focused application with limited negative customer impact was inspiring. As was their focus on simplified onboarding (with a cheeky waiting list to boot); welcoming Apple-like debit card packaging and delivery; and trickle of application updates bringing thoughtful touches of user-focused innovation (Safe to Spend, debit card toggle, user embedded transaction based images, Dropbox integration). It was all there, with much more in the hopper. Then you add a nonbank-like transparency and personally engaging unbank-like social media strategy on top of customer-focused simplified experiences. This was a winning combination.
I know few people I truly respect in the industry that didn't appreciate what Simple accomplished in the past four years. While critics took their swipes (and some things could have certainly been improved), Simple customers didn't care. Nor would they even know, because critics were generally from the industry. Simple was attempting to disrupt, and average consumers outside of industry weren't going to find much disparaging coverage in the mainstream press.
The eventual issue likely came down to running out of money as Simple required additional investment to grow. Burning through their initial $15-16 million investment, the revenue model needed to expand as much as their team in Portland. With a transparent goal of reducing bank fees, credit products and traditional loan income needed to be bolted on. A deposit-focused neo-bank could not live on interchange alone.
Do I think Simple had been quietly shopping itself for much of the past year? I've had several people tell me that, but I don't know for sure. Nor do I really care. They needed additional investment to grow; that's all but certain. They needed an expanded customer base to grow profit from key credit segments, and a critical flush of cash or outright purchase made perfect sense. I'm surprised it hadn't happened earlier to be honest.
Something needed to change.
What should we learn from BBVA's acquiring of their new trinket? Simple’s co-founders are great salesmen, for one. They got one hell of an evaluation for such a small customer deposit base (though some coverage has suggested the BBVA got a great deal, the valuation seemed fair). There's been plenty of coverage of the price per user, and far too many comparisons to WhatsApp, which was purchased by Facebook last week. It's just a little silly to compare the two, but in some ways the lessons are the same: building simplified digital experiences, especially in financial services, is critical to institutional survival.
Is BBVA trying to build a global direct bank brand through Simple? Possibly, at least they'll now need to work with the Simple team to figure out how to scale this in multiple markets. Would this compete with BBVA Compass? Certainly, but who cares? Let customers choose their own flavor. Markets will do the rest.
Was it an acqui-hire for the 90-plus Portland-based Simple team? With the rise of more and more direct digital only versions of foreign banks, BBVA is smart to lock in this talent for a while and learn from their efforts. My only fear is that with the inevitable departure of the founders, what has really been gained? (More in that in a minute.)
The team at BBVA is a technology-forward, aggressive-minded Spanish bank with a broad global footprint. Like Citigroup’s Ventures, American Express, National Australia Bank, Standard Chartered and countless other bank incubators and innovation arms, early development fin-tech firms and leading technologists are being courted and constantly evaluated. The Simple team was a viable prize. We'll likely see much more acquisitions of this type in the next few years. It’s a smart move being repeated in other tech-industry verticals.
Simple's acquisition also further proves that the coming contraction in the banking industry is not only real, but this reality should drive bank's primary strategy to focus in building scale and profit through digital. This contraction is here to stay, whether through unprecedented M&A, mass customer migration toward larger deep pocket national and super-regionals, or the rapid influx of foreign banks like BBVA, Santander and BNP Paribas.
Will BBVA-plus-Simple become a new powerhouse bank, challenging top ten global financial brands? Maybe. But does it matter when in less than ten-years-time, most banks in our market will have to be over $50 billion in assets just to compete for relevancy? That doesn't leave very many financial institutions from the sub-14K number we have today.
Other quick lessons from Simple's acquisition: Reducing friction, adding transparency, and driving toward customer-focused design within beautifully crafted applications is critical not just for messaging or social media apps, they're a necessity for financial institutions as well. Social media in financial services should be fun, and focused on solving a customer’s problems, engaging customers in personal ways, and is a 24/7 role. Banking can be inspiring as long as the people building the bank are as well.
I've had several conversations and countless chats on Twitter with Simple's co-founders Josh Reich and Shamir Karkal over the years and I always found them incredibly genuine, very focused and acutely aware of Simple's ability to shift the conversation around innovation within financial services. Whether the story of Simple will go down as part of its founder's myth, or whether it continues to make a dent in the banking universe remains to be seen. I, for one, see their influence in the financial space as only beginning. And we should be inspired and thankful for it.
My congratulatory tweet said: Thank you @i2pi (Josh) and @shamir_k and the @simple team for building a bank that 'doesn't suck.'
We should all be focused on a similar mission.
Bradley Leimer leads digital strategy for the Mechanics Bank in Richmond, Calif. He writes about ways to make banking better on his blog, Discerning Technologist.