The idea of a low-frills,low-fee online bank with populist mission statement-Don't Suck-has captured the imagination of more than 20,000 people who have pre-registered to be customers when the bank opens its online doors. Now all founder Joshua Reich needs is a bank partner with the technological savvy to support his vision.

That part hasn't been so simple. Though several banks are interested in serving as a behind-the-scenes partner, cementing a deal has been harder than anticipated, largely because of technology hurdles.

"It's a huge surprise about how technology is a limitation to what we want to do," Reich says. Bank operations are notoriously siloed, which makes it difficult to get the 360-degree view of customers that BankSimple's business plan calls for.

"This technology has existed for a long time," but banks have not had an incentive to adopt it, says Reich, an Australia native with a background in technology and mathematics. "None of this is rocket science."

Though it is still in development under Reich and partner/CFO Shamir Karkal, BankSimple has gotten plenty of buzz, thanks in part to high-profile hires like Alex Payne, an early employee of Twitter. This month the company secured nearly $3 million in seed money from a team of investors led by First Round Capital, IA Ventures and Village Ventures.

When he started Simple Finance Technology Corp. in Brooklyn, N.Y., Reich opted not to pursue a bank charter. Instead he focused on building the technology and customer service and partnering with a financial company that would handle back-end banking and compliance issues. Reich says he expects to announce a bank partner by yearend. Most of the banks he has been talking with are small or midsize companies without a large retail operation.

BankSimple plans to provide a combined checking and savings account, tied to a debit card, as well as low-balance credit products. It will help consumers manage money through a comprehensive view of their finances, including savings goals. There will be no annual or monthly maintenance fees, no overdraft fees, and no fees for using automated teller machines. Revenue for BankSimple and its forthcoming partner bank will come through net interest income and interchange fees, with more sophisticated revenue-generating offerings to come.

BankSimple is focusing on Gen-Y professionals comfortable with technology and on average with more than $10,000 in their accounts, "These are customers that have plenty of alternatives but don't like any of them," he says.

Analysts say it's difficult to tell how much of a dent companies like them or BankSimple will make in the industry. "Does this thing really catch fire? Does it gain momentum?" says Ali Raza, evp of Speer & Associates Inc., a consulting firm. "I think that is the $64,000 question. Many of these companies have been fairly nichey."

Reich says it would be all right with him. "We are not doing this to become millionaires," he says. "I think we'll be a blip on top of a blip. We have limited growth plans. We have a very patient view."


Sarah Lepro is a writer for American Banker

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