{"id":3881,"date":"2015-12-08T21:30:20","date_gmt":"2015-12-09T02:30:20","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/online-bank-simple-not-so-simple-after-all\/"},"modified":"2015-12-09T16:04:22","modified_gmt":"2015-12-09T21:04:22","slug":"online-bank-simple-not-so-simple-after-all","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/online-bank-simple-not-so-simple-after-all\/","title":{"rendered":"Online bank Simple \u2013 not so simple after all"},"content":{"rendered":"<p>Online bank Simple,\u00a0<a href=\"https:\/\/en.wikipedia.org\/wiki\/Simple_(bank)\">founded in 2009<\/a>\u00a0and\u00a0<a href=\"http:\/\/techcrunch.com\/2014\/02\/20\/simple-acquired-for-117m-will-continue-to-operate-separately-under-its-own-brand\/\">acquired by BBVA<\/a> bank\u00a0in 2013, is clearly underperforming (<a href=\"http:\/\/mashable.com\/2010\/07\/30\/banksimple\/#mZ8ocRjUuGqO\">launched aiming to disrupt banking<\/a>, had only 33,000 customers in 2014 with a deceiving 5% monthly growth \u2013 curious about\u00a0<a href=\"https:\/\/growthhackers.com\/growth-studies\/airbnb\">how it compares to Airbnb?<\/a>). It was set for failure since the very beginning when it designed its operating model. The company\u00a0<a href=\"https:\/\/www.quora.com\/Will-Simple-get-a-banking-license\">thought it was a good idea to become only a software interface<\/a>, and outsource the real banking business (<a href=\"http:\/\/money.howstuffworks.com\/personal-finance\/banking\/bank4.htm\">managing balances and transactions<\/a>) to old brick-and-mortar banks (<a href=\"http:\/\/www.newyorker.com\/business\/currency\/the-bank-and-the-anti-bank\">Bancorp first, BBVA after the acquisition<\/a>).<\/p>\n<p><strong>Failing to deliver value<\/strong><\/p>\n<div style=\"width: 640px;\" class=\"wp-video\"><video class=\"wp-video-shortcode\" id=\"video-3881-1\" width=\"640\" height=\"360\" preload=\"metadata\" controls=\"controls\"><source type=\"video\/mp4\" src=\"https:\/\/www.simple.com\/video\/when-did-you-know.mp4?_=1\" \/><a href=\"https:\/\/www.simple.com\/video\/when-did-you-know.mp4\">https:\/\/www.simple.com\/video\/when-did-you-know.mp4<\/a><\/video><\/div>\n<p><a href=\"https:\/\/www.simple.com\/\">\u201cThe way banking should be\u201d<\/a>. The website and video makes one <u>rightly<\/u> feel that it sounds too good to be true. Operating as a software-only company, the \u2018anti-bank\u2019 has no real chance to deliver on any of its main value promises:<\/p>\n<ul>\n<li><u>Budgeting and financial planning<\/u>: Budgeting is the \u2018holy grail\u2019 of financial planning: discover how much you spend in each category (e.g., lunch, grocery) and identify ways to smartly save on them. However, Simple falls very short from their promise: it doesn\u2019t provide a full picture (i.e., doesn\u2019t integrate accounts from other banks) and the amount of data they can analyze is more limited (regulation prevents Simple from accessing key customer info saved in the partner bank), making the results less insightful to the customers.<\/li>\n<li><u>Deposits and transactions<\/u>: if there\u2019s one thing a bank has to do, is to allow you to pay anytime anywhere with your money. Simple has had issues with\u00a0<a href=\"http:\/\/techcrunch.com\/2014\/10\/10\/months-after-its-upgrade-simples-online-bank-is-still-broken\/\">information integration with its bank partners<\/a>(e.g., declining payments, reporting wrong account balances), mainly due to legacy programing protocols that generate errors continuously, leading to prolonged customer dissatisfaction.<\/li>\n<\/ul>\n<p><strong>Failing to capture value<\/strong><\/p>\n<p>Banks\u00a0<a href=\"http:\/\/www.americanbanker.com\/bankthink\/how-banks-can-escape-the-fate-of-dumb-pipes-1060674-1.html\">don\u2019t want to become \u2018dumb pipes\u2019<\/a>\u00a0like it is\u00a0<a href=\"http:\/\/www.bna.com\/telcos-rewrite-dumb-n17179923864\/\">happening in the telecom industry<\/a>, and regulation is in their side. Many of the operations of Simple need to be processed and approved on their side, hindering the opportunity to capture value as well:<\/p>\n<ul>\n<li><u>Slow customer acquisition<\/u>: Physical bank branches still account for\u00a0<a href=\"http:\/\/thefinancialbrand.com\/26055\/bancography-branch-strategy-briefing\/\">95% of account openings<\/a>. To change consumer behavior (i.e., get customers to open an account online instead of in a branch), Simple needs to produce an \u2018aha\u2019 moment for early adopters: be simple, delightful and fast. However, Simple takes up to 72h to open an account and, after that,\u00a0<a href=\"http:\/\/qz.com\/213192\/banking-startup-simple-seems-to-be-struggling-to-sign-up-active-users\/\">it denies many of the applicants<\/a>\u00a0(an issue that the company recognizes is it\u2019s main limiter of growth) given to \u2013again- extremely high restrictions from its partner bank. The worst part of the story? Neither Simple nor the potential customers get to know why they have been rejected (see below):<br \/>\n<a href=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/reject2.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-3858 size-full\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/reject2.png\" alt=\"reject2\" width=\"303\" height=\"429\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/reject2.png 303w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/reject2-212x300.png 212w\" sizes=\"auto, (max-width: 303px) 100vw, 303px\" \/><\/a><\/li>\n<\/ul>\n<ul>\n<li><u>Minimal net interest and transaction interest margins<\/u>: These margins are the main source of revenue (specially for Simple, that\u00a0<a href=\"http:\/\/techcrunch.com\/2015\/09\/11\/online-bank-simple-ditches-all-its-fees\/\">ditched almost all fees<\/a>). However, deposits and payments are not handled with modern and lean technology, but rather by the partner\u2019s legacy mainframe computers. This archaic technology is expensive to operate so the margins that Simple manages to retain are extremely low (source: former investor interviews).<\/li>\n<\/ul>\n<p><strong>The rational behind the flawed operations strategy<\/strong><\/p>\n<p>Simple wasn\u2019t founded as a software interface to a bank by mistake. The founders had the\u00a0<a href=\"https:\/\/www.simple.com\/blog\/the-beginning\">vision to launch a full retail bank<\/a>, but would soon be faced with reality. The FDIC has a\u00a0<a href=\"http:\/\/www.offshorecompany.com\/banking\/start-a-bank\/checklist\/\">long list of very restrictive requirements to launch a bank<\/a>\u00a0in the US that even some startups with great and banking-experienced funding teams have failed to meet (<a href=\"http:\/\/www.slideshare.net\/linhir\/standard-treasury-series-a-pitch-deck\/30\">see the assessment<\/a>\u00a0by Standard Treasury, a 2015 failed bank startup).<\/p>\n<p><strong>Is there any hope?<\/strong><\/p>\n<p>The answer is yes, but elsewhere for now. The UK, hoping to increase competition,\u00a0<a href=\"http:\/\/www.americanbanker.com\/news\/bank-technology\/why-uk-fintech-firms-are-becoming-not-partnering-with-banks-1076704-1.html?pg=2\">reformed in March 2013 the banking law to favor the creation of bank startups<\/a>, leading to the proliferation of promising new bank startups: <a href=\"https:\/\/www.atombank.co.uk\/\">Atom<\/a>, <a href=\"http:\/\/starlingbank.co.uk\/\">Starling<\/a>, <a href=\"https:\/\/getmondo.co.uk\/\">Mondo<\/a>\u00a0and <a href=\"https:\/\/tandem.co.uk\/\">Tandem<\/a>.<\/p>\n<p>Mondo &#8211; <a href=\"https:\/\/getmondo.co.uk\/\">\u201cIt&#8217;s time for a new kind of bank\u201d<br \/>\n<a href=\"https:\/\/player.vimeo.com\/video\/136918188\">https:\/\/player.vimeo.com\/video\/136918188<\/a><br \/>\n<\/a><\/p>\n<p>The video above sounds like it\u2019s too good to be true all over again. The only difference is that this time the operational model is right: obtain full UK banking license, use modern flexible technology, and be obsessed with the user experience (<a href=\"http:\/\/techcrunch.com\/2015\/11\/24\/uk-mobile-only-atom-bank-picks-up-128m-led-by-bbva-owner-of-simple-in-the-u-s\/\">and BBVA seems to agree, investing now in UK mobile bank Atom after buying US Simple<\/a>). This time the customer promise will be true. Let the revolution of banking begin.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u201cOnline bank Simple was set for failure since the very beginning, and it belongs to the worst kind of startup failures: those that don\u2019t achieve their ambitious goals by any means, but also manage to mediocrely survive; like nightmares that never end.\u201d<\/p>\n","protected":false},"author":618,"featured_media":3893,"comment_status":"open","ping_status":"closed","template":"","categories":[698,264,259,119,91,146,700,699,94],"class_list":["post-3881","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-bank","category-finance","category-fintech","category-loser","category-mobile","category-online","category-partnerhsip","category-regulation","category-startup"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Online bank Simple \u2013 not so simple after all - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/online-bank-simple-not-so-simple-after-all\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Online bank Simple \u2013 not so simple after all - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"\u201cOnline bank Simple was set for failure since the very beginning, and it belongs to the worst kind of startup failures: those that don\u2019t achieve their ambitious goals by any means, but also manage to mediocrely survive; 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