A financial service for those fed up with banks

Written by New York Times | Updated: Jan 10 2013, 18:50pm hrs
Like many people, Josh Reich got fed up with his bank after it charged him overdraft fees and he endured painful customer service calls to fight them. But unlike most people, Reich, a software engineer from Australia, decided to come up with a better way to bank. Reich and a co-founder, Shamir Karkal, created Simple, an online banking start-up based in Portland, Oregano, that offers its customers free checking accounts and data-rich analysis of their transactions and spending habits.

Few entrepreneurs dare to set their sights on industries as large and entrenched as banking and expect to flourish. But Reich, 34, a professed data nerd who has built computers and tinkered with the innards of sophisticated cameras, holds a masters degree in business and has a robust background in financial data analysis. He is confident that Simples minimalist approach it promises not to charge any fees for any services will draw fans and customers. Banks make money by keeping customers confused, Reich said. Theres no incentives to make the experience better.

Of course, inviting people to trust a start-up with their money is a lot to ask. The company, which began signing up customers late last year in a deliberately slow fashion, now has 20,000 and has processed transactions worth more than $200 million.

It also has the backing of prominent venture capital firms including Shasta Ventures, SV Angel and IA Ventures and has raised more than $13 million. Simple has few, if any, direct competitors, although some services like SmartyPig and Mint offer analysis of bank accounts and financial transactions.

Simple is actually not a bank. It has deals with CBW Bank and Bancorp, federally insured banks, to hold its customers money. And it has built slick apps for the Web and mobile devices to give customers an overview of their accounts and transactions. But it encourages customers to treat it as a bank, closing their more traditional accounts and only using Simple. Its biggest challenge, banking analysts say, will be to persuade people to give it a try.

Although they are not a bank, they still operate like a financial institution, and they will face challenges that big banks have decades of experience with, said Jacob Jegher, an analyst at Celent, a research and consulting firm.

After the financial crisis, smaller community banks and credit unions gained customers eager for alternatives to larger corporate banks. Experts say Simple could attract those customers as well. Early adopters are warming to the service; during a speech last fall at a conference aimed at technology enthusiasts, designers and creative people, Reich asked how many in attendance were Simple customers. A majority of the crowd raised hands. Reich said Simple was keeping its first group of customers small to allow it to work out any kinks. At this stage, those who want a Simple account have to request an invitation on its site, though these are handed out fairly liberally to those who meet the minimal qualifications of Simple and its bank partners.