The Path Not Taken by Simple to Remake Finance | Hacker News Reader

The Path Not Taken by Simple to Remake Finance

blog.zactownsend.com

Having worked as a vendor to the financial space for many years, I think it is easy to underestimate how hard it is get off the ground in finance (either banking or money management). There are many obscure regulations, and often the numbers just don't add up. In the end, this probably was a fair deal for Simple.

I think WealthFront is another good example of the difficulty. I like the direction they are going, but they had to pivot many times to get to were they are now, and they are still a fraction of the size of established players in the market. It still isn't clear if their business model is going to work.

With that said, the inefficiency in the money management business is pretty ridiculous. I think companies built from the ground up on new technology will eventually replace existing players in the market, but the margins will probably be a lot less as well.

Met Zach at the ST holiday party through a mutual acquaintance. I found him to be quite upbeat and aware of the challenges that are omnipresent in infrastructure businesses (source: I'm deeply involved in an infrastructure business involving a horse of a different color). One must bet big to win when it comes to infrastructure games.

For standard treasury, I believe that becoming a bank is a logical step and one that I would welcome wholeheartedly. There are so many things about the current monoliths I deal with that I hate and I feel like it's entirely possible for almost anyone to deliver a better experience.

They're in a hard place right now though. I don't think ST has any revenues to speak of and they don't appear to have raised any money post-YC. This is a business I really want to succeed but it seems unlikely to do so without a major cash infusion. I really like zt but they're in a hard place with no shelter in sight.

To put this in perspective, you probably need about $50M to start a chartered bank and you probably need $20-30M to buy a distressed one. Those are not ridiculous numbers for the kinds of returns this could have, but a bank will never have 97% margins as a business and so I don't know if this is a venture backable business. Now, a fund with longer time horizons... That might be interesting.

Edit: For the sake of clarity, I want to be explicit when I say that I'm pulling for standard treasury. It's a hard business and I really want them to succeed because I think it would be a net-benefit to almost all of us.

Thanks for the encouragement Josh!

We raised a round post-YC. Oh, and we have revenue too. We're up to eight people and have a long runway.

Buying a bank would take a different sort of capital though. One has to think about working with PE/hedge funds (some of whom have already bought banks) or even sovereign wealth.

From the consumer point of view, as a startup bank I think it would be important to guarantee to the users that you'll accept no buyout offers from big banks for 5 years, and then renew that commitment every 5 years or something. It might be a crazy idea and maybe those who don't like big banks just are more vocal about it, but a lot of people are afraid of trusting a new system that can be gone any day or snapped up by a monolith that they were trying to avoid.

Hey Zach!

That's funny, I couldn't find your post-YC round anywhere on the interwebs or CrunchBase. You've done a great job keeping that under wraps (also the revenue piece, WOW!).

I'm excited for you guys and look forward to banking through you in the future.

I agree that sovereigns would be interesting (as would PE/hedge) and I'll point out that we have many of the largest fund of funds on the planet in the bay area (within spitting distance of your office actually).

Best of luck and I look forward to seeing your team prosper in the future.

Business Insider reported $10+ million run rate:

http://www.businessinsider.com/y-combinator-startup-standard...

Edit: from "ST stated" to "BI reported"

I wouldn't call that article the most accurate written about Standard Treasury.

There's gotta be some viable way to "rent" the services of a small, forward-thinking bank (or, better, Utah industrial loan comp/corp) that would let you control most or all of the customer-facing aspects, no?

We went down this route at X.com (PayPal pre-cursor) but the intent was to eventually buy FWNB (http://www.netbanker.com/xcom/).

I'd love to pick your brain. I've chatted some with Roelof and Dana about x.com but I think it was actually before their time. I'd really like to unpack that history a little bit and understand the problems. One obvious difference in our vision and it's is that we'd prefer to start on the commercial side.

More generally, we've just found it difficult - in the current regulatory environment - to find a small bank that is also forward-thinking.

BancBox tried this with Four Oaks Bank in North Carolina. This is where Four Oaks is now:

http://www.plainsite.org/dockets/index.html?id=5178849

BancBox is now applying for a California money transmission license.

Bancorp was the path for Simple and WePay, and Clinkle is reportedly talking to them as well after Zions Bancorp pulled out of their agreement (which was probably wise). None of these companies have had any impact on the financial system. It's not an easy thing to pull off.

It kind of makes me sad. Banking in the US is soooo outdated (paper checks?), and banks themselves together with government seem not able to come up with better ways of organizing this industry.

Let's hope somebody takes Zac's advise and goes for it. I hear a couple of just dudes got $16 billion, that sounds like enough to start with.

> banks themselves together with government seem not able to come up with better ways of organizing this industry

It's not that they couldn't, it's that entrenched interests don't want change.

I sound like a broken record, but it all comes down to money transmission laws.

http://www.thinkcomputer.com/20140214.cfpbcomment.pdf

I'm the author.

I wouldn't agree. If you built a bank, you aren't subject to the same money transmission regulations. You're subject to many other regulations...

And you can't "build a bank," even in five years, as Simple just showed us, unless you have unbelievable wealth, or a bank already.

I strongly disagree. Simple did not try to build a bank.

Sure sounds like it started that way.

"Four and a half years ago I sent an email to my future co-founder Shamir with the subject “Let’s start a retail bank.” Over the following weeks, Simple was born."

https://www.simple.com/blog/the-next-chapter/

Though this might have been their original intent, it was not the end result, ultimately they partnered with a bank and offered a fairly normal checking and savings account to their customers.

Was it a bank-like experience? absolutely(which is what I would argue is a HUGE part of the problem) but was it their own bank? Absolutely not

Simple isn't a bank; they are an intermediary. Starting a proper, chartered bank does not require "unbelievable wealth". Its certainly not something you are going to bootstrap without being a millionaire, but it is doable.

Furthermore, if you want to build a bank you must be prepared for "normal" (i.e., non-startup) growth rates.

I'm seriously thinking about starting a bank. That's partly the end goal. A hedge fund is how I'm going to begin. If anyone's interested, let me know. I'm a few months from launching the fund. ricky@this_hackernews_account_name.com

I just closed my Simple account that I've had for a couple years now because of this. Call me crazy but I don't like the idea of contributing to social atrocity that is big banking. Really disappointed in Simple. Congrats to them though.

You do realize your money has been in a 'big bank' this whole time, right?

What sorts of services did you have in mind for your idealized bank? Is it just taking deposits and making loans? Maybe automated payments? Any corporate finance stuff?

Payments. Loans. Corporate Finance. Those all sound necessary, ya. I think the product plan and it's rollout is really the secret sauce - even in a world where execution is everything.

high interest rate 2-5%, security, no annoying lockouts for international purchases, dont have to talk to customer service, no limits on atm withdrawals or phone checking (with invisible security).

USD prime is currently 3.25% so the highest you could expect risk-free* is maybe 3%

So you need a huge amount of capital, talent, and fresh faces, but will be plagued by launch delays... sounds like Clinkle to me. Maybe this is what they're up to?

I am not sure we have any evidence that Clinkle has a huge amount of talent - in the absence of a product it is hard to prove either way.

Unusually it might just be easier to start outside the US. maybe not, but worth looking at.

Awesome job Zach!!

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