Forget The Big Banks, BankSimple Will Provide The Same Services Without Screwing You Over

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BankSimple has no physical locations, you do everything online. More than simply mobile, the interface makes it easy to see what you can spend, and how you can save.

Overdraft penalties, hidden charges, ATM fees – mainstream banks have come up with a myriad of ways for separating you from your money. BankSimple not only wants to put an end to the leaching, they want to help you manage your cash in the easiest, most straight forward way possible. The (soon to be) Portland-based startup represents a new kind of retail account for your money. Instead of brick and mortar banks, everything is done online or via a smart phone app. Instead of dealing directly with checking and savings accounts, you just tell BankSimple your goals, and they manage your money for you. Best of all, there are no hidden fees. Take a sneak peek at their online interface in the video below. With 70,000 people signed up for a chance to join their beta, BankSimple is hoping to make a big splash on the retail banking market in late 2011/early 2012, and has $13 million+ in funding propelling them forward. Can a web-based bank really change the way Americans manage their money? I talked with CEO Joshua Reich, and it sounds like BankSimple is going to find the answer soon.

Let’s clarify what BankSimple is, and how it works. First, it’s not a traditional bank, but you do put your money in a BankSimple account as if it were a bank. You make deposits by electronic transfers or by photographing a check with your smart phone. BankSimple gives you an online interface, and a debit card, that you use to make payments from your BankSimple account. If you want to put some of your money in savings, BankSimple finds the appropriate financial products and invests for you. BankSimple manages your money, all you do is set goals for your savings. The startup is partnered with Bancorp and CBW Bank and when you deposit into BankSimple they open up appropriate services at these institutions. That means your money is FDIC insured, even if you personally aren’t dealing with the partnered banks yourself. BankSimple chooses the financial products you need based on your habits and preferences made via the online interface.

The following video steps you through using the interface, and gives you a look at how BankSimple can help you easily search through your payments, plan for your future, and make sure you don’t overspend.

For those that are used to dealing with big retail bank chains like Chase, Bank of America, and WellsFargo, BankSimple can seem like a fly-by-night sort of operation. No buildings? I’m not opening the accounts at Bancorp and CBW myself? I make deposits through my phone? Yet even if BankSimple seems like an extremely stripped down version of a retail bank, it offers a big benefit: no fees. Or at least, no hidden fees. If you want an expensive financial service (like a wire-transfer) expect to pay enough to cover the cost, but otherwise you’re getting pretty much everything for close to free. Standard online banking services like paying bills or setting up automated deposits are free. You aren’t charged if you use one of their 35k+ partnered ATMs (up to 45k soon), and if you use an ATM outside their system, you only pay the fees charged by the host bank. There are no balance requirements, and BankSimple has no overdraft fees (though you’ll still have to repay what you owe). In short, BankSimple wants to provide you a retail bank option that doesn’t profit off your misery.

So how do they profit? According to Reich, BankSimple makes money the way banks used to. They offer loans and gain profits off the margins as they are paid back. They also charge (modest) fees to merchants when you use your debit card to pay for things. The history of retail banking before the 1990s showed us that this is a sustainable model, and one still used outside the US today. Reich points out that most US retail banks make up to 55% of their revenue from fees (how horrifying is that?) but also spend about 60% of their budgets on local branches. BankSimple has no brick and mortar banks, so they can drastically cut down their overhead. In turn this means they can make enough money off traditional revenue (loans and merchant services) so that they don’t have to profit off your confusion and misery.

BankSimple’s disdain for sharking their customers hasn’t kept investors from pursuing the startup. They raised $3+ million in 2010, and recently announced an additional $10 million raised in venture capital. Bancorp and CBW Bank have agreed to partnerships for financial products and services. Allpoint and Visa are onboard for the ATMs and debit card. BankSimple has also secured Andera as a partner, mostly to deal with online identification regulations. TxVia is on board for transaction processing.

Between the funding and the partnerships, BankSimple is now ready to expand their beta testing. Reich says that they only have about 50 card holders at the moment, a group almost entirely made up of employees and partners. One such early adopter/tester has completely transferred all their finances to BankSimple, an example Reich will follow soon. In the next few weeks they’ll should be able to increase their rolls to several hundred and then, later in the year, to thousands. Reich expects it will be somewhere around mid 2012 before they get through adding in the 70k+ people now on the waiting list. The slow roll out is due to BankSimple’s commitment to making this the most friendly and convenient banking service on the market. I’ve signed up for the beta, and while it will be months before I’m even up for being added to the rolls, the customer service is already great (if a little slow due to the volume of interest). Reich says that the sign up rate continues to increase, so if you’re interested in joining you may want to do so now. By year’s end many of us will be whipping out our stylish BankSimple ‘white card‘ to make payments just like their employees.

Though BankSimple clearly has plenty of interest to sustain it through its beta, it’s still uncertain if the startup will be able to transition into the mainstream come 2012. There are plenty of retail providers offering “hassle free checking” or “totally free checking” to customers. Likewise, online banking has become a (nearly) ubiquitous service, and most banks have jumped on the smart phone deposit bandwagon. So I don’t think that BankSimple is distinguishing itself simply by saying it is mobile and fee-adverse. We’ve been sold those things before. (Even if BankSimple is planning on doing both better and Reich is utterly convincing when he describes his vision for a bank that helps its customers rather than profits by hindering them).

Where BankSimple may be able to really break new ground is their online interface’s automated money management services. As you saw in the first video, BankSimple tells you not how much you can possibly spend, but how much you can safely spend. It doesn’t offer you various interest rates for savings, it asks you when you need money by and tries its best to meet your goals. In essence, BankSimple provides you with your own personalized financial assistant that learns by reviewing your transactions and understanding your spending habits.

For many in my generation that service is badly needed. Perhaps there was a flaw in our education, perhaps we simply grew up during a time when banks and other creditors were revolutionizing new ways to confuse and skin their customers, but I have many friends who simply shouldn’t be managing their own money. Too reliant on credit cards, too bogged down by student loans, too pressured to spend on short term rewards – we could use a service that tries to help us reach our financial goals rather than simply spend like madmen. Other banks do have similar tools, but BankSimple unites them and places them center stage, which could really help us with fiscal responsibility.

Will BankSimple’s style of automated money management sell well enough to launch the startup into a major retail banking competitor? Not sure. The combination of no hidden fees, streamlined (mobile) banking, and financial counseling certainly makes them an attractive option. I hate most banks I’ve done business with, and get very frustrated as fees continue to rise while interest rates fall. Any company that succeeded in cutting through the banking bullsh*t would definitely earn my approval. Yet all new banks face problems with gaining trust and a sustainable customer base. BankSimple has the additional hurdle of being innovative and untested – something most people probably won’t want in a financial institution. I think the company is really amazing, and I’m very interested in seeing if they succeed. …But I’m still undecided as to whether or not I’ll join BankSimple with a token deposit, or if I’ll really look to change the way I bank. I did sign up for an invite. The only question is when BankSimple comes knocking, will I answer?

Would you?

[image and video credit: BankSimple]
[source: BankSimple]

Discussion — 7 Responses

  • SaintWells September 27, 2011 on 1:37 pm

    Please do not forsake us already deeply screwed South Africans , where banking gets you when you bend over to pick up your last pennies and leaves you with holes in your trousers where no pocket could exist.
    We are tired of shell fish banks that leaves a fishy odor .

  • Joe Nickence September 27, 2011 on 4:19 pm

    I’m not particularly fond of traditional banking. If credit unions were easier to translate, I’d use them exclusively. It’s a trade off. My car and home loans are through a local credit union, just because they were the institution that approved them. My everyday transactions are usually done via a bank debit card. Personally, I’m waiting for services like Google Wallet. When web based financial services start dealing in competitive loans, I might consider it.

  • Harlan Robinson September 27, 2011 on 8:28 pm

    I am not a fan of virtual banking. Having grown the way, I did I need cash. All this debit stuff is fine most of the time. However, like me, to many people get screwed when you have all your money in the system. The system can screw you when ever some one feels like it. This is not Switzerland. Banking is not the problem its the profit motive, no regulations and other stuff too numerous to name. Besides why put your money in a bank now anyway. When things were 5% they were lying about inflation. All your doing is lending your money to crooks who make you pay a fee to do that. Priceless!

  • Kristof September 27, 2011 on 9:41 pm

    I dig it, ive been employeed for the last several years by an extremely successful financial firm that has also done everything possible to reduce cost for it’s clients including eliminating the brick and mortar overhead, which is a huge advantage over its competitors. Business models like this understand what automation will bring about. In a world where most jobs are automated who the hell would want to be a teller and if your not talking to person inside the bank why go in one?

  • digitalcole September 29, 2011 on 10:30 pm

    I wonder how many more people are going to sign up now that BofA is going to start charging just to use check cards?

  • BenGr October 17, 2011 on 1:00 pm

    Why would anyone opt to lose services (like the ability to bank face to face) in exchange for a bank’s promise to refrain from ‘sharking’ you to ‘profit off your confusion and misery’???

    Even pretending that banks have any record of reliably protecting the consumer and communicating honestly, this promise means nothing. Additionally, while it sounds like they are offering free checking, the closest they get is ‘no hidden fees’… which is not a unique banking policy, it is a required disclosure for all banks. It is pretty easy to tell that this is no NEW bank, just the same old wolves hoping you won’t recognize this disguise.

    So what can you do???

    If you don’t want a bank that is always scheming new ways to profit off you, then don’t bank with a for-profit bank. Bank with your local credit union.

    My credit union provides checking and savings that are better than free; they pay interest on both checking and savings. Free ATMs, Debt and Credit cards, Online and smart phone banking. Not CHEX System affiliation.

    You can find one in your area by going to http://www.creditunion.coop

    • Kristof BenGr October 19, 2011 on 12:33 am

      I hate having to going into the bank, I personally would not view as a loss of service if I was able to accomplish everything online. This bank has promised to the direct a signifcant portion of their budget to providing excellent customer service which can happen in ways other than face to face.

      Knowing the bank is saving themselves the enormous cost of the overhead that it takes to run a local bench is also very comforting, it means they can be profitable without the games that other banks have to play like hidden fees.