Building a new way of banking that maximizes technological benefits for our customers became about more than how to better connect people with their finances. As both financial services professionals and banking customers, we also grew increasingly frustrated with the traditional banking system.
After immigrating to a country known for technological innovation, we were both struck by the fact that banks in the U.S. operate on antiquated technology that offers minimal improvements for web and mobile experiences.
The outdated bank tech offers consumers a delayed picture of their finances even on their smartphones, which leads to confusion and in turn penalty fees and charges. This reckoning didn't originate in a dispassionate examination of banking practices: our personal experiences were no different.
Along the entrepreneurial journey that followed, we made major discoveries on what is blocking technological innovation in banking.
One of the major roadblocks is banks' ancient data infrastructure. Bankers by and large seem to have never heard of application programming interfaces, and the bank APIs that are out there are horrible.
A few weeks into building Simple, we began to survey banking technology. We quickly learned that a tour of most bank data centers rivals any trip to the Computer History Museum. We even toured one bank data center that had a functioning Tandem, which went out of production in the 1990s. Despite the vast number of people we spoke with, there were only a handful of undifferentiated, overweight, underpowered database options and they were being sold to banks at an extraordinary cost.
As technologists, we were dumbfounded. Data storage was an expensive resource, real-time transactions were non-existent and interoperability was a foreign concept. To us, it felt as if the entire evolution of technology and the advent of "the cloud" skipped over banking.
For example, say you remember a bill just before it's due. Even if you were to immediately log in to your bank and press "pay," an electronic transfer would still take one business day or longer to process. Your payment would be late. You'd likely be hit with a fee. Worse, some banks made money off this outdated technology by doing things like reordering transactions to maximize overdraft fees charged to customers.
All of this in an age when tech companies like Facebook and Twitter offer instant global communication and virtually unlimited data storage for free.
On the other hand, banks have a number of competitive advantages beyond regulatory status.
While startups may be agile, banks can run circles around them when it comes to managing massive amounts of funds. Banks are stable and their technology systems move very large amounts of money around the globe via transfer systems like ACH and Swift. Banks also have decades of experience in lending, both in good times and in bad. Not to mention that the majority of adults in developed economies already have accounts with traditional banks.
Yet another roadblock is the reservations banks and tech firms have about working together. With so many complementary strengths and weaknesses, you would think that the technology and banking sectors would be eager to work together and transform the customer experience. But that hasn't been the case.
Banks charge that tech companies have an unfair advantage because they aren't regulated. Tech companies don't want to start the regulatory conversation out of fear of being regulated. Banks argue that tech companies offering more traditional financial services are cannibalizing the incumbents' business model.
At the end of the day, the two industries lack a shared vision. These challenges get in the way of forming partnerships to help maximize the potential of financial technology.
To overcome these challenges, banks need to put these inter-industry squabbles aside, while also embracing the API model as a transformative solution.
If there were any doubt about how the API approach works for helping established companies create a better customers experience through technology, banks should look no further than the launch of Amazon Web Services.
When Amazon made cloud computing available via AWS in 2006, many doubted that opening core infrastructure capabilities to third parties via APIs would make business sense for Amazon. It looked like it was "giving away" its competitive advantage.
Ten years later, AWS generates $7 billion in revenue and has grown 50% year-over-year. In fact, AWS is one of the most valuable parts of the Amazon business. Its success goes to show that opening up access to technology can drive innovation across an entire sector.
In banking's case, it's up to both technology and finance to scale the divide. If banks modernize their approach to APIs, they will improve the experience for customers and create new revenue streams. At the same time, they'll benefit internally from outsourced innovation, exposure to new business models and the ability to focus on their core competencies.
Most importantly, they'll create a better experience for customers and deliver on that early vision of using technology to help people feel confident with their money.
Josh Reich and Shamir Karkal were the co-founders of Simple, which in 2014 was acquired by BBVA Compass. Reich is currently Simple's chief executive, while Karkal is head of open APIs for BBVA.