The Story of BankSimple
carnegiemellontoday.com
carnegiemellontoday.com
BankSimple seems to be a no-branch bank like ING-Direct. They're presenting themselves as being better. How are they different? Well, they're pushing the idea of no-fees, better customer service, and better mobile banking. In order to achieve that, they'll have to be more efficient or accept a lower profit margin. Banks have healthy margins so there is some room there, but there are other industries with higher margins.
The second piece is that there are already not-for-profit banks. They're called Credit Unions. They exist to give their customers (who are their owners) the best deal they can. In order to be better than credit unions, they'll have to be significantly more efficient rather than simply relying on lower margins.
Part of what makes me skeptical is that they aren't creating a bank. They're partnering with currently chartered banks. This is probably because it's very difficult to create a bank and there's a lot of regulation to deal with. However, this somewhat limits what they can do to give me a better deal than a bank (since they're just reselling the product of another bank). Now, banks vary in how good of a deal they give you so part of their product might simply be getting you a good account under their brand. But part of this means that BankSimple won't be doing what banks normally do with deposits. Banks normally lend it out or invest it. BankSimple will be parking it in another account. So, if they aren't charging fees, how will they make their money? Maybe they've found an account that will give them 1% interest and they'll pass on 0.5% interest to me. However, why shouldn't I just bypass them? If they're doing things like refunding ATM fees, covering overdraft fees, etc. will the interest difference cover that?
I'm not saying that it can't be done. They stress no-fees and earning more interest. If they aren't lending the money out themselves, that will be hard to do - especially considering that they're claiming the best customer service, best software, etc. Where are they making their money? Not off fees and they aren't lending it out, but rather relying on other banks.
I'd really love to see their business plan since I assume they've addressed these things. Maybe wholesale banking exists and offers them a lot more. Maybe credit unions are woefully inefficient. I'm excited for their launch, but I'm not unhappy with my credit union.
For the consumer, if they can offer some of the analytic capabilities of Mint combined with the ability to make cash withdrawals from ATMs, deposit checks from your phone, and even get (some) interest it's an incredible product. It can roll most of your online financial needs into one company with a dedication to customer service. Sure, they may provide slightly worse interest rate. But how many people actually know their exact interest rate right now? Compare that with the number that have been adversely affected by overdraft fees and who would appreciate real customer service.
I wish them the best of luck! I hope they become the Zappo's of banking
Personally, my experience suggests that many people care very little about receiving monetarily the best deal (and the exceptions make sucky customers).
So yes, I think UX innovation could add a lot of value to the generic bank experience.
The way that BankSimple could differentiate themselves is by providing a very good API that I can use to get my account information, including transactions easily and securely as well as move money around to various other bank accounts. That is what I miss right now, I can set up recurring transfers but there is no way for me to programmatically say check if there is enough money or a direct deposit has been made correctly before transferring the money.
Maybe I'm alone in that, maybe I am not. Either way they have to offer something that ING Direct currently does not offer at a very competitive price (free) or it just won't be worth my time.
Credit Unions have restrictions on who can become a member. Also, I used to be a member of a Credit Union bank through work and while their fees might have been lower, their web ui wasn't any better than, say, Wells Fargo's.
I also have ING Direct account because they have much better savings rates then Wells Fargo. However, again, their web ui leaves a lot to be desired.
If not anything else, currently a bank-like service can differentiate itself simply via a fast web site with a top-notch design. From the UI previews I've seen so far, BankSimple is doing the web UI much better than the banks I'm familiar with.
banksimple negotiated high rates in exchange for banksimple doing all of the overhead/grunt work. the partner bank ensures the money and will lend it out, just like a normal bank. banksimple is basically building a slick customer service and user interface business on top of an existing bank, not building a new bank.
they make money on the difference in what they're paying in interest and what they're getting, and kickback on the card usage.
Interesting combination, hope it works, and that their business model has solutions to the obstacles you mentioned, especially the fee/cash flow stuff
Simple design, easy navigation, and a nice overview of the important features. My favorite part of the site is at the bottom of the page: "The BankSimple Team." It's rare but refreshing to see people attach their names, bios, and pictures to banks and financial companies. I'm excited for their launch - these guys are clearly taking some steps in the right direction.
As for hype, this is a college magazine doing a little boosterism for one of its graduates. Just like every other college magazine on the planet.
Desperately hope they find huge success and expand overseas.
One of things things I miss in the US from the UK was a banking system that wasn't entirely set out to screw you. It wasn't your friend, but it didn't wish you as ill will as the national banks here.
So you have institutions staffed by people who honestly want to help you as much as they can, and a corporate regime that wants to fuck you as hard as it can.
I've no idea how that compares to American banks, but it's pretty screwed up.
The government always requires cash or check. I had to buy a check book just so I had the privilege of sending The Man more tax. They are also used (bizarrely) as a proof of your bank account number for various things. It's not uncommon for a company that is doing banking with you (like your payroll) to ask for an invalidated check so they can get your bank account number right.
I really hate checks.
"As the months go on, Reich and Karkal research and refine their idea. They discover that starting a bank, charter and all, is a cumbersome process that could take three to four years and would plunge them into a world of regulation and compliance. They decide that their main goal is to improve customer experience, because, as Reich says, "Banks in America fundamentally make money by keeping customers confused. ... A confused customer is a profitable customer. We've joked that one of the greatest innovations in banking is ever-decreasing font size." They realize the best way to improve customer experience is as a technology company, and it's what they both do best. They're now developing the technology Reich believes is so lacking in current U.S. banks. This technology will be transparent to the average customer but will make their banking easy, hassle-free. Even the product's name will be easy-BankSimple.
BankSimple will be exclusively online. Customers will have one easy-to-access account and one card. They'll have free ATM access to the nation's largest network and free online bill payment. They'll have no overdraft fees, in fact, no hidden fees at all. They'll be able to deposit checks in such innovative ways as using pictures taken with their smartphones. They'll have real-time, useful data and the tools to clearly and easily manage their money.
In the consumer's eyes, BankSimple will function as a bank, but in reality it's purely the front-end experience. Reich and Karkal will work behind the scenes with chartered banks that hold FDIC-insured deposits and make loans. Their company's system will move funds as needed between checking, savings, and credit accounts to make life easy yet yield the most for the customer. The company will make its profits not from myriad fees, but by sharing lending and credit card profits with their partner banks."