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How does Simple compare to something like Ally (http://www.ally.com)? Thinking about switching banks recently - are online only banks pretty nice, or do they have drawbacks?

Disclosures: I work at Ally and my team is building Ally's new online banking interface.

- Unlike Simple, Ally is actually a bank.

- We take deposits and then turn around and lend that money out primarily as auto loans.

- The rates we can pay are currently capped because we're still a TARP company.

Interface-wise there will be significant changes in the future (October-ish). Our entire online banking will be a single page application built using Ember, inspired by Simple. The transition will be ... interesting ... but after things settle down you can know that we're aiming to compete at least interface-wise in the space that Simple is in. (They have some fun things on the backend that we're not attempting yet.)

And if you look under the covers once we launch you'll notice that there is an API driving nearly everything. I wonder what might happen if that were, say, usable by others?

I'm interested, what kind of stuff are they doing in their backend that you guys aren't going to attempt to do yet?

This is an over-simplification. I'm also not entirely sure how much I can say, so I'm skipping things.

Most banks use what we term "bank-in-a-box" software provided by one of two vendors:

FIS - http://www.fisglobal.com/ Fiserv - http://www.fiserv.com/

In fact, just about the only ones who aren't using a complete bank-in-a-box solution are the megabanks, for example: BofA, Wells Fargo, Chase.

The upside of using a bank-in-a-box solution is that you can spin it up almost immediately and at very little cost (relatively). The downside is that you're running technology that, very often, was written last decade. For example: https://secure.ally.com/allyWebClient/login.do uses jQuery 1.3.2, released in 2009.

But worst of all, you can't really differentiate yourself from your competitors–they're using the same thing under the hood. In order to begin the process of differentiation you typically see banks progress through stages out of dependence upon these solutions.

1. First you enable service calls into the system of record (SoR).

2. Then you Balkanize your services, calling back and forth between your BiaB solution and your own custom component which reaches out to the SoR through services instead of the hosted, white-labeled BiaB. This is terribly slow. Remember what I said about last-decade technology?

3. Eventually a bank completely migrates completely to service calls on the backend to the SoR. But they still haven't implemented any of the reporting or back-of-house processing.

4. The ambitious banks then start trying to move the SoR and the back-of-house processing and reporting (this is a big deal) in-house. However, to work, this has to be a one-time switchover since "eventually consistent" is not a valid state for bank data.

Almost everybody stops before attempting Step 4. It starts getting expensive and hard really fast at that point–and almost no bank has that appetite for risk. However, even if you attempt Step 4, the legacy of your technical decisions has resulted in loosely coupled and often poorly integrated experiences wherein even pulling your data in-house likely doesn't fix it. At this point Step 5 is digging out of your technical debt, and I've yet to see any bank succeed at that.

Simple skipped Steps 1 & 2. They never incurred Step 5. They were insulated from Step 4 by using a holding bank. Step 3 was why they took so long to launch. On a technical level Simple is years ahead of every bank out there. Features they had the data for could be implemented in no time. Organizationally their mission was clear enough that everybody bought in. Their race, which I've said numerous times, was to catch up to Ally's marketing and deposit assets before Ally (or others) catches up to their technology. It's an asymmetric race, but not being a bank means that Simple couldn't leverage fractional reserve banking to its fullest which cuts into profit margins and makes it much harder to succeed. Their acquisition price implies to me that their burn rate was too high for their revenues to make the long game sustainable.

Contrast with BofA: "We spend, just overall, about $3 billion and change in annual technology development."

I made a similar comparison and went with Ally - their rates are far better than Simple.

Simple's app is good, but in all honesty I don't have a huge need for it. Ally has a servicable app that does check deposits, and I use Mint to analyse my spending etc.

Also, Ally refunds all ATM fees, Simple doesn't. In a city like New York that's a huge benefit.

Another vote here for Ally. Been using them for years. Pick up the phones right away; website works well; easy transfers and the interest rates paid on deposit products are decent. Additionally when your cd's expire they kick an extra .15 loyalty bonus.

(Fwiw and ntim ally is from the remnants of GMAC a division of GM Corp.)

Ally's current app is built using http://www.kony.com/ which is why it is less than awesome. We're actively working to improve our native applications (and web experience), look for updates coming soon in your friendly neighborhood app stores. :)

With Simple, there are no ATM fees at any AllPoint ATM, and they are everywhere.

ATM locations are a funny thing. I realise that there are many Allpoint/whatever network ATMs near me, but I really value just not having to care. I usually get cash out when I remember I don't have any and see an ATM, rather than hunting one down.

Online banks are great until your ATM card is compromised at which point it is promptly cancelled and a new one can be _shipped_ in "3-5 business days." When you're 3-5 business days overlaps with a holiday and a weekend, this can keep you without access to your bank account for almost 2 weeks (shipping doesn't mean it's in the mail yet). The only way around it is to pay $15 to expedite shipping, which (should) get it shipped in around 1-2 business days. So being a victim of something like a Target-level attack is particularly problematic. When I was at a 'bricks-and-mortar' bank, I could walk in and get a new card _that day._

So far that's been the only real drawback, for me, at Ally. That and their website is pretty bare-bones compared, especially, with Wells Fargo's. WF has some pretty great budgeting tools Ally just doesn't have. Mint fills in that blank for me. I just became a Simple customer and am honestly a bit wary of them being part of an international banking group.

While you will have to deal with this pain with Simple, it can be significantly mitigated. You can delay ordering the new card because Simple lets you instantly block all transactions on your card—and unblock them just as instantly. Effectively, if you see a fraudulent transaction or are worried, you can pull your phone out, block the card, and only unblock it when you go to actually swipe the card. Then, when the timing is better, you can go ahead and order the new card. After also having withdrawn cash to cover the time difference, or having sent yourself a check, or whatever.

The only thing to be wary of is that you can't dispute fraudulent transactions way in the future, so your window isn't infinite.

Good to know. That was definitely not an option at Ally. It was: fraud call, card blocked instantly, new card ordered later. Thanks for the tip!

Ally's focus is on providing excellent rates which we have done by limiting our focus. That being said, you can look for tremendous changes in our technology story later this year.

I have accounts at both. Simple's draw is the UI - budgeting & reporting tools. Ally's draw is the (relatively) high interest rate.

Simple has one great downfall, in my opinion. They don't offer joint accounts. For me, that's a fatal flaw.

I've been at Ally for a year and was at ING Direct for several years prior. I never went to the physical bank, so I was happy to trade a brick & mortar branch for a higher interest rate.

Not that it does (or necessarily should) matter to customers, but Ally isn't a startup; it's the renamed GMAC bank, spun out of General Motors in 2006, and recipient of over $16B in US Government TARP bailout funds in 2008-2009.

Ally is a real bank, Simple isn't, right?

My understanding is Simple just processes the transactions, without holding deposits. $1.7 billion sounds like a lot, but in Financial Services it's not that big. $117 million seems fair, if not high.

$1.7 billion is a misleading number. The number that matters most in banking is your total deposit assets which they did not reveal in the blog post. The purchase was for two assets: the total deposits on hand (easy to calculate return on) and the technology. It's likely that at any bank of reasonable scale that it would take 2-3x the $117 million to build something comparable to what Simple already has. (I've worked at Wachovia, Wells Fargo, and Ally, and live in Charlotte so I know BofA's story too.)

This is an excellent purchase by BBVA, and a steal at that price. In short order they will move the assets over from the holding bank (that's the guaranteed money). At that acquisition price I suspect that Simple was struggling to return a profit since they were not actually a bank.

To your last point was Simple's cost of funding just too high?

Over-simplification: As a "not-bank" they can't engage in fractional reserve banking. This leveraging of money is what allows banks to truly generate profits. Acquire deposit assets at 1%, lend that same money out at 3-5%, profit on the spread. If a bank is offering a low rate that means that either their lending arm is not able to effectively use deposited capital or their overhead as percentage of that spread is too large. Higher rates signal that the bank is attempting to gain capital in order to supply their lending side.

Simple's funding likely only increased their runway while they were building a product that I'm guessing was net-negative. I don't feel like they could generate enough revenue to cover their burn rate using their holding bank strategy. If they could I suspect they would have continued down this path as a fearsome (future) competitor.

Once some bank builds the underlying technology in-house correctly they're going to be nigh untouchable.

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