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I'm still trying to nail the business model here. "BankSimple account plus BankSimple debit card replaces your existing personal bank account. Make deposits, w
by jakarta 16y ago
I'm still trying to nail the business model here.
"BankSimple account plus BankSimple debit card replaces your existing personal bank account. Make deposits, withdraw cash, pay bills, earn interest, and more.
However, BankSimple is not a "bank." We partner with chartered banks who provide FDIC-insured products, leaving us free to concentrate on designing the complete consumer banking experience, via the web and your smartphone."
From the looks of it, it appears as if Bank Simple is going to be gathering deposits for the actual banks they partner with. In exchange, those deposits will be fenced in and administered by Bank Simple via the online and mobile presence.
The mention of debit cards at first made me think that maybe they would be able to split fees, so Bank Simple would get a cut of the interchange fees that occur whenever a debit card is used... but those fees will go away because of the Durbin Amendment (this is putting the squeeze on every major bank in the US and will result in an increase in fees for customers -- see Jamie Dimon's comments at the recent Barclays Conference).
Maybe the partner banks will split some of the interest they make off of the deposits? Presumably, Bank Simple's value proposition to them would be that they are providing something that is slightly more than zero cost funding but less than a CD rate. So they could earn a little bit in that area.
The only thing that is left then, that I could think of, is that Bank Simple will mainly try to make money by cross-selling products. Bank Simple Brokerage Accounts. Bank Simple Mutual Funds. Bank Simple Pre-Paid Debit Cards. That sort of thing, where they'd be able to gain market share. This would work out pretty well I think.
For reference, the average American uses 16 different financial products, with about 2 products per bank. A good bank like Wells Fargo boasts a ratio of 5.5-6 products per customer. Your typical bank earns its money on an 80/20 split, where 80% comes from the interest spread (borrow at 3%, lend at 6%, net 3%) and 20% comes from fees (overdraft, interchange, fees for other products). But a trust bank will have a 60/40 split, where they earn extra fees by offering wealth management services to the majority of their wealthy customers.
- chrisgoodrich 16y agofrom the FAQ (https://www.banksimple.com/faq/ https://www.banksimple.com/faq/) > If you don’t charge hidden fees, how do you make money? We make money from two sources: interchange and interest margin. Interest margin is the revenue earned from lending, less what they pay on deposits. For example a bank may charge a customer 12% to borrow money, but pay 5% interest on a savings account. The difference, less any defaults on the loan, is revenue to the bank. Interchange is a small revenue source that card issuing banks earn whenever that card is used at a store. Typically banks earn less than 1% for each time the card is used to make a purchase. These are both great revenue streams, but banks got greedy and started charging additional fees to bolster their revenue. Without hundreds or thousands of branches, our operation is low cost, so we don’t need to rely on extraneous fee revenue.
- haploid 16y agoInteresting. Except the Federal Reserve has absolutely no intention of raising short term interest rates above 0.25% for several years. The spreads in the real world will be much, much thinner than the example above suggests. Although it's possible to make money from thinner spreads, doing so exposes the trade to greater interest rate risk. The model sounds interesting, but I hope these guys have stellar risk management.
- howardlothrop 16y agoAverage net interest margin for Q3 2010 is 3.75% per FDIC. http://www2.fdic.gov/qbp/2010sep/qbp.pdf http://www2.fdic.gov/qbp/2010sep/qbp.pdf http://www.echopartners.com http://www.echopartners.com
- pxlpshr 16y agoYes, it's called affiliate banking. It's how a lot of prepaid debit card companies operate.
- i2pi 16y agoThe Durbin Amendment only applies to banks with >$10bn balance sheets. I don't have the latest numbers, but in '08, the large banks were making closer to 45/55, not 80/20.
- jakarta 16y agoThat's a really good point about the size issue with the Durbin Amendment, so in that case, then yeah - interchange fees should be a great income stream for Bank Simple. I don't know too much about how it works for an affiliate debit card like Bank Simple is proposing -- obviously they are partnering with large banks for the deposits, but I wonder how the process works for the debit cards.
- i2pi 16y agoI'm not a fan of the "affiliate" phrase. Most affiliate banking relationships are purely marketing relationships. Stick a logo on another bank's card and call it done. While our relationship with banks is similar from a regulatory perspective, we have deep technology integrations that allows us to provide a much better end-to-end user experience. This is why it is possible to launch an 'affiliate' card in a matter of weeks, but it is taking much longer for us. We first had to find banks that shared our vision, were willing to cede control of fees and user experience to us and had the technical chops to integrate with us. It was a tall order, but we'll be making some key announcements on this front real-soon-now.
- blasdel 16y agoSo you're trying to do the iPhone of the retail banking industry? Get the weaker but competent operations to cede control over fees and the user to you, to do something other than the short-term diphittery that's plagued the industry forever, and make everyone piles of money. I do hope that you tone down the designery stuff once you launch. Google Analytics gets a pass on the front end, but I definitely don't need XSR from MixPanel and TypeKit all up in my banking experience. I know it's heresy to designerbros, but the UX problem with existing banking has nothing to do with typography and everything to do with 3270 emulation & petty bureaucracy.
- uvince 16y agoCan you cite your source please? or a source? thanks. <i>For reference, the average American uses 16 different financial products, with about 2 products per bank. A good bank like Wells Fargo boasts a ratio of 5.5-6 products per customer. Your typical bank earns its money on an 80/20 split, where 80% comes from the interest spread (borrow at 3%, lend at 6%, net 3%) and 20% comes from fees (overdraft, interchange, fees for other products). </i>