
The Path Not Taken by Simple to Remake Finance - stefanobernardi
http://blog.zactownsend.com/the-path-not-taken-by-simple-bank-to-remake-finance
======
cmbaus
Having worked as a vendor to the financial space for many years, I think it is
easy to underestimate how hard it is get off the ground in finance (either
banking or money management). There are many obscure regulations, and often
the numbers just don't add up. In the end, this probably was a fair deal for
Simple.

I think WealthFront is another good example of the difficulty. I like the
direction they are going, but they had to pivot many times to get to were they
are now, and they are still a fraction of the size of established players in
the market. It still isn't clear if their business model is going to work.

With that said, the inefficiency in the money management business is pretty
ridiculous. I think companies built from the ground up on new technology will
eventually replace existing players in the market, but the margins will
probably be a lot less as well.

------
josh2600
Met Zach at the ST holiday party through a mutual acquaintance. I found him to
be quite upbeat and aware of the challenges that are omnipresent in
infrastructure businesses (source: I'm deeply involved in an infrastructure
business involving a horse of a different color). One must bet big to win when
it comes to infrastructure games.

For standard treasury, I believe that becoming a bank is a logical step and
one that I would welcome wholeheartedly. There are so many things about the
current monoliths I deal with that I hate and I feel like it's entirely
possible for almost anyone to deliver a better experience.

They're in a hard place right now though. I don't think ST has any revenues to
speak of and they don't appear to have raised any money post-YC. This is a
business I really want to succeed but it seems unlikely to do so without a
major cash infusion. I really like zt but they're in a hard place with no
shelter in sight.

To put this in perspective, you probably need about $50M to start a chartered
bank and you probably need $20-30M to buy a distressed one. Those are not
ridiculous numbers for the kinds of returns this could have, but a bank will
never have 97% margins as a business and so I don't know if this is a venture
backable business. Now, a fund with longer time horizons... That might be
interesting.

Edit: For the sake of clarity, I want to be explicit when I say that I'm
pulling for standard treasury. It's a hard business and I really want them to
succeed because I think it would be a net-benefit to almost all of us.

~~~
zt
Thanks for the encouragement Josh!

We raised a round post-YC. Oh, and we have revenue too. We're up to eight
people and have a long runway.

Buying a bank would take a different sort of capital though. One has to think
about working with PE/hedge funds (some of whom have already bought banks) or
even sovereign wealth.

~~~
josephjrobison
From the consumer point of view, as a startup bank I think it would be
important to guarantee to the users that you'll accept no buyout offers from
big banks for 5 years, and then renew that commitment every 5 years or
something. It might be a crazy idea and maybe those who don't like big banks
just are more vocal about it, but a lot of people are afraid of trusting a new
system that can be gone any day or snapped up by a monolith that they were
trying to avoid.

------
pbreit
There's gotta be some viable way to "rent" the services of a small, forward-
thinking bank (or, better, Utah industrial loan comp/corp) that would let you
control most or all of the customer-facing aspects, no?

We went down this route at X.com (PayPal pre-cursor) but the intent was to
eventually buy FWNB
([http://www.netbanker.com/xcom/](http://www.netbanker.com/xcom/)).

~~~
zt
I'd love to pick your brain. I've chatted some with Roelof and Dana about
x.com but I think it was actually before their time. I'd really like to unpack
that history a little bit and understand the problems. One obvious difference
in our vision and it's is that we'd prefer to start on the commercial side.

More generally, we've just found it difficult - in the current regulatory
environment - to find a small bank that is also forward-thinking.

------
dirkdk
It kind of makes me sad. Banking in the US is soooo outdated (paper checks?),
and banks themselves together with government seem not able to come up with
better ways of organizing this industry.

Let's hope somebody takes Zac's advise and goes for it. I hear a couple of
just dudes got $16 billion, that sounds like enough to start with.

~~~
whatevsbro
> banks themselves together with government seem not able to come up with
> better ways of organizing this industry

It's not that they _couldn 't_, it's that entrenched interests don't _want_
change.

------
thinkcomp
I sound like a broken record, but it all comes down to money transmission
laws.

[http://www.thinkcomputer.com/20140214.cfpbcomment.pdf](http://www.thinkcomputer.com/20140214.cfpbcomment.pdf)

~~~
zt
I'm the author.

I wouldn't agree. If you built a bank, you aren't subject to the same money
transmission regulations. You're subject to many other regulations...

~~~
thinkcomp
And you can't "build a bank," even in five years, as Simple just showed us,
unless you have unbelievable wealth, or a bank already.

~~~
dkimerling
I strongly disagree. Simple did not try to build a bank.

~~~
thinkcomp
Sure sounds like it started that way.

"Four and a half years ago I sent an email to my future co-founder Shamir with
the subject “Let’s start a retail bank.” Over the following weeks, Simple was
born."

[https://www.simple.com/blog/the-next-
chapter/](https://www.simple.com/blog/the-next-chapter/)

~~~
zbruhnke
Though this might have been their original intent, it was not the end result,
ultimately they partnered with a bank and offered a fairly normal checking and
savings account to their customers.

Was it a bank-like experience? absolutely(which is what I would argue is a
HUGE part of the problem) but was it their own bank? Absolutely not

------
dynofuz
I'm seriously thinking about starting a bank. That's partly the end goal. A
hedge fund is how I'm going to begin. If anyone's interested, let me know. I'm
a few months from launching the fund. ricky@this_hackernews_account_name.com

------
macinjosh
I just closed my Simple account that I've had for a couple years now because
of this. Call me crazy but I don't like the idea of contributing to social
atrocity that is big banking. Really disappointed in Simple. Congrats to them
though.

~~~
xxpor
You do realize your money has been in a 'big bank' this whole time, right?

------
minimax
What sorts of services did you have in mind for your idealized bank? Is it
just taking deposits and making loans? Maybe automated payments? Any corporate
finance stuff?

~~~
dynofuz
high interest rate 2-5%, security, no annoying lockouts for international
purchases, dont have to talk to customer service, no limits on atm withdrawals
or phone checking (with invisible security).

~~~
jarek
USD prime is currently 3.25% so the highest you could expect risk-free* is
maybe 3%

------
21echoes
So you need a huge amount of capital, talent, and fresh faces, but will be
plagued by launch delays... sounds like Clinkle to me. Maybe this is what
they're up to?

~~~
objclxt
I am not sure we have any evidence that Clinkle has a huge amount of talent -
in the absence of a product it is hard to prove either way.

------
justincormack
Unusually it might just be easier to start outside the US. maybe not, but
worth looking at.

------
iterable
Awesome job Zach!!

