When
Simple, founded by Josh Reich and Shamir Karkal in 2009, is considered by many to be the inspiration behind a generation of challenger banks such as Chime and Varo Money.
“Simple was the earliest success of a generation of fintech, before that was even a word,” said Brad Leimer, co-founder of Unconventional Ventures in San Francisco. Hundreds of challenger banks have riffed on what Simple did, he said.
“Simple was the original anti-bank, and the first to talk to its customers like a real company, as opposed to the way banks interact,” said Brian Hamilton, founder of the challenger bank One and co-founder and former CEO of Azlo, a BBVA-backed challenger bank for entrepreneurs that BBVA also shut down last week.
Simple “was designing consumer-friendly, mobile interfaces before bankers had even heard those terms, and they inspired an entire category and many entrepreneurs, including myself,” Hamilton said.
Simple would encounter growing pains and was sold to BBVA in 2014 for $117 million. The company had high hopes for its neobank initially, but it said it decided to close the unit after reevaluating all of its businesses ahead of BBVA USA’s
There are lessons for fintechs and banks from the rise and fall of Simple — especially for those who try to blend upstarts and traditional players.
Promising start
Before Simple came along, some banks had online banking websites and a few had mobile apps. They were add-ons, rather than a central focus. Simple was the first company to put all its energy and attention into a mobile banking app.
“I think of Simple as the Tesla of the digital banking world, but without the valuation,” said Jacob Jegher, president of Javelin Strategy & Research.
To this day, some banks still debate internally the best way to compete with such upstarts and whether they should set up their own digital-only bank, he said.
The main thing Simple brought to the retail banking industry was an emphasis on user experience and customer service, Jegher said.
Reich got the idea for Simple when he moved to the U.S. and opened an account with a large New York bank.
“It was clear how different and how adversarial it was compared to my banking experiences in Australia,” Reich said in an interview Friday.
One time, he was paying his bills on the bank’s website when it crashed. The page reloaded and he thought nothing of it. Two days later, he woke up to an alert telling him he had overdrafted. The website refresh had caused all his bills to be paid twice and the bank charged an $11 overdraft fee. For three weeks, he tried unsuccessfully to get that $11 back.
“It illustrated the problems with the web technology, the problems with siloed organizations in a bank where no one wants to be held responsible, problems with customer service and this underlying adversarial relationship where the customer just felt so powerless,” Reich said.
Reich and Karkal, who had been a McKinsey consultant and is now founder and CEO of payment API provider Sila Money, set out to build a better bank.
One mobile app feature Simple pioneered was called Safe to Spend. It tracked the customer’s account balances, predicted the bills that would come in that month, and calculated how much money the customer could safely spend in the meantime.
“From very early on, I told the company that the chance of succeeding in this industry is pretty slim,” Reich said. “It's a complicated, difficult, highly regulated business. But if we can show to the industry as a whole that customer experience matters, and that people, particularly the younger generation, have a higher expectation for what digital service means, if it can inspire an industry to change, I'll count that as a win.”
Growing pains
Simple had its share of well-publicized outages. The biggest one occurred when Simple moved off TxVia (a provider of prepaid card and bank account processing that was bought by Google in 2012) to its own core-processing platform.
“We put a lot of customers in a bad position financially,” Reich acknowledged.
The Simple team immediately triaged the customers who were having difficulties. With one group, they knew what went wrong and how to fix it.
“We didn't have a committee working on the PR management of this crisis," Reich said. "We just spoke like people to people, and that came through.”
With another set of customers, the Simple staff didn’t immediately know what the problem was.
“These were people who had cards that were not functioning, they couldn't do bill pay,” Reich said. “Their money was with us, but they couldn't touch it.”
The list ballooned from 20 people to 200. Reich called every single one.
“Most of those calls went to voicemail,” he recalled. “I was so nervous. What do I say to these people? The truth is, I didn't know what was wrong with their account. I didn't know when we'd fix it. But I knew I was sorry, and I just wanted to speak to each one individually and work out what we could do.”
Simple employees bought prepaid cards and mailed them to customers.
“It didn't cost us very much, but the fact that myself and the leadership team were all on the ground, speaking to people like humans, the retention rates that we had for customers that were in the worst position was almost 100%,” Reich said.
Unlike many other challenger banks, Simple never offshored its customer service team or put it in a separate building. All Simple employees worked on the same floor and Reich’s desk was in the customer service area.
“That connection was important,” Reich said. In weekly company all hands meetings, customer service team members would share their favorite stories and play back their favorite calls.
Such efforts are hard to scale up as a company gets larger, he acknowledged.
What went wrong
Reich said there’s one thing he would do over if he could.
“I regret not being a strong enough leader,” he said. “I had a really clear vision for what I wanted the business to be. But one of the things that challenged me is I'm naturally a pretty introverted guy, and it took me a while to learn how to manage a 300-plus person company. During that time we were building up, I was learning to become a manager. I think we could have done more in that time period.”
Simple grew to more than 100,000 users, but it never grew to the scale of Chime, which now has more than 8 million users, or Varo, which has more than 2 million.
Leimer said this was a matter of timing.
“What we can learn from Simple is that some ideas may not work right away, and new ideas build on those initial ones to work even better, and an ecosystem of enablers build up around them to disrupt an industry,” he said. “But someone has to be among the first.”
Some say being acquired by BBVA, a Spanish bank with a $102 billion-asset U.S. unit in Birmingham, Ala., hampered Simple’s growth.
“The BBVA acquisition was the beginning of the end for Simple,” Hamilton said. “You can't maintain the fierce independence needed to truly innovate if you're operating within a company as large and established as most traditional banks,” which have to satisfy shareholders, he said.
Still, Jegher said the idea of a traditional bank acquiring a digital bank can work.
“The culture clash is less pronounced today, given that financial institutions have moved more heavily on user experience technology,” he said. “I do think there's room for further acquisition.”
But Leimer says Simple is a cautionary tale for bank-fintech combinations.
“If any bank could have made it work, it was BBVA,” Leimer said. “So to me, that signifies that no bank – not Chase, not … Santander, no large bank – can take a challenger like this and successfully grow this like what we've seen at Chime, Varo, or MoneyLion.”
Leimer’s advice to fintech founders is not to sell, but to continue to build, continue to focus on customers’ needs, push the boundaries of the business model and find new ways to make banking better.
