Simple CFO: Banks Won’t Catch Up To New Innovators

Consumers have made their voices heard: they’re unhappy with major banks, they want alternatives, but they don’t know which alternatives to choose.

The primary reason bank customers stay in bad relationships? Convenience, according to a 2012 Javelin Strategy and Research study. It revealed that most Americans enjoy access to ATMs, online banking and mobile banking, technologies that smaller regional or community banks currently can’t afford to invest in.

But, what if consumers could have best-in-the-business conveniences from an alternative provider?

That’s the driving question behind Simple Finance, a Portland, Oregon-based banking startup. Founded by Josh Reich and Shamir Karkal, Simple has partnered with federally insured banks to offer free checking accounts packaged with a sophisticated app. Simple’s app lets its customers send money, access no-fee ATMs and talk to live representatives directly from their online account.

Simple’s CFO, Sharmir Karkal, says its doing more than just capitalizing on negative consumer sentiment. In an interview with PYMNTS.com, he says Simple is seeking to establish itself as a major innovative force in banking, one major banks won’t be able to catch.

PYMNTS.COM: This is the first time Simple has been featured on this site, though it isn’t the first time we’ve collaborated together. For readers who might be unaware, can you start by introducing your service and explain how it’s aiming to “replace banks?

Shamir Karkal: Simple customers receive an FDIC-insured account at our partner bank (the Bancorp Bank) and Simple takes care of the rest. We provide our customers with a stylish Simple Visa® debit card, and gorgeous apps for iOS, Android and the web.

Our unique built-in budgeting and saving tools empower Simple customers to save more and spend smarter. All of that is supported by our real-time transaction processing and rich data. Add to this 55,000 no-fee ATMs, no monthly fees, no overdraft fees and free Photo Check Deposit, and Simple effectively replaces your bank with a smarter way to save and spend.

You recently introduced Goals for iPhone, a new feature that aims to help users save. How did this product creation come about? Why do you feel banks have been reluctant to offer similar products?

Like most of our product features, Goals came about through our team’s own experiences with trying to save money, as well as behavioral economics research and thousands of email conversations with customers. Saving money is hard, because banks force customers to make it an explicit action (i.e. opening a new, separate savings account) and most customers find it hard to build new habits.

Behavioral research has shown that making things easy and automatic creates almost magical changes in behavior. So we decided to minimize the number of clicks it takes to create a new goal, and to automatically allocate a little money into goals everyday by default. Customers have complete control of the funds transferred in and out of Goals, and are never charged a fee.

But by taking the money out of their Safe-to-Spend balance a little at a time, and making this a default behavior, we made it very easy for customers to self-regulate their spending and ‘automagically’ achieve their Goals. Adding this feature to our iPhone app was a no-brainer, since people need up-to-date financial information when they are out and about, and we’re looking forward to launching Goals on Android in the near future.

Traditional banks, on the other hand, struggle to launch such features due to skewed incentives, outdated technology and organizational structures that do not reward innovation.

As of now, potential users are still signing up to request the service. Is your company moving to more widespread adoption? Or do you plan on keeping Simple exclusive long-term?

Our focus at Simple is on quality, not quantity. We do not want to [grow so] quickly that the quality of our service is compromised, and this has been the largest consideration in limiting our growth rate – ensuring that we scale in a way that our customers aren’t impacted. That said, we are rapidly onboarding those on the wait list and wait-time for an invite is down to a few weeks at most.

Simple is, as of now, operating without any direct competitors. Do you expect company in your space soon? And as you grow, do you see Simple evolving to become more like traditional banks or traditional banks evolving to be more like Simple through newer product offerings?

We view the large traditional retail banks as our most direct competitors. That’s where the majority of Americans bank today, and that’s where the majority of our customers are coming from. There are lots of smaller companies that are trying to innovate in our space and we really view them as partners in a shared mission to take the down massive incumbents in this space.

Looking into the future, I see tectonic shifts in the banking landscape over the next few years. Large banks have clearly lost touch with customer needs, and customer trust has eroded as a result of the financial crisis. This creates a huge opportunity for companies like Simple to disrupt a trillion-dollar industry, and there are many innovators who are circling this space. Regulation is a huge barrier to entry, but I think its ability to slow down innovation is limited. I think the banks will try harder and harder to catch up, but they may already have missed the boat.

Early this year, reports indicated you had about 20,000 customers and were processing $200 million in transactions. How have these figures changed and how does Simple plan to continue to grow these numbers over the next six months?

Simple has more than doubled since the start of the year and continue to grow rapidly, though our focus is on the present and providing our customers with the best banking experience out there.