Nobody expects the Spanish acquisition

Please give me a break on the headline. I know it’s not SEO-optimal, but there’s no other choice for a piece about BBVA’s acquisition of Simple. Once someone e-mailed it to me, the die was cast.

Over the years I’ve worked in the US quite a bit and have generally found myself there a few times a year. I used to carry a prepaid US dollar card for incidental spending while I was over there and for a while this was tolerably convenient. But it dates from an earlier age. If I wanted to know the balance I had to phone up a number and punch some codes in, and I could never be bothered to do that especially when I needed to know quickly. Logging in on the web was a pain and I could never remember which login went with which card (I had a US $ card, a Canadian $ card and a € card). And if I found an ATM to read the balance and realised that I needed to top it up, I couldn’t do that immediately. And loading it was a bit of a pain because I couldn’t send the money directly from my bank account. And some times it didn’t work because, for whatever reason, I had to have a US-issed card to do something or other.

Anyway, a couple of years ago, for one reason and another, in particular the fact that I was in the US every month, I decided it would be easier to open a US bank account and get a US debit card and then just use that while I was over there. I went to the websites of a couple of the biggest US banks but couldn’t figure out how to open an account online, so I wandered into the first bank branch I found outside my hotel and asked to open an account but it turned out to be so complicated, even after I’d be back to the hotel to get my passport, that I gave up.

The problem was that I didn’t really want a bank account. I just wanted transaction account. So the amount of effort I was prepared to put in, and the amount of money that I was prepared to pay, was strictly limited. I just wanted somewhere where I could send money to, park it in tolerable safety, keep a bit of an eye on it using my mobile phone, and spend it using a card at point-of-sale.

At the same time I was messing around with some other US centric financial products such as Google wallet and once again I needed a US-issued cards. I was also, at the same time, involved in a couple of projects that had led me to think about the idea of “near-banking” again and I’d even gone so far as to suggest to a couple of our financial services clients that they look at near-banking propositions as vehicles for delivering some of the improved payment services that we were working on. The reason for doing this, of course, is that the regulatory burden associated with banking is very high, and therefore costs a lot of money, and also constricts innovation and change. And I don’t say that in a bad way, I say it in a good way, because I don’t want banks going nuts. I want them to be regulated, constrained and conservative.

So I started to look for a near-bank proposition in the US, and I found Simple. The more I looked at it the more I became interested in it as an example of that near bank option that I had recommended to clients and because I saw Simple as a very good example of that business model executed very well indeed. If you’re still wondering about that phrase “near-bank”, Simple is not a bank, as I repeatedly told journalists reporting this story.

The funds in your Simple account are held by our partner bank, The Bancorp Bank; Member FDIC. Simple provides everything else,

[From FAQ | Simple]

I opened an account. (I should point out that I used to work in the US, which is why I have a valid social security number and was able to do this.) I have to say that I have been very happy with my Simple account (*). The service has delivered flawlessly and in my experience the customer service that they pride themselves on has reached an impressively high standard.

Back in 2012, at the first Money2020 in Las Vegas, I had the good fortune to bump into one of the founders Shamir Karkal and he was kind enough to give his time to make a podcast about the venture and how he got it started. He even helped me out explaining something about the app, which I always use to illustrate that customer service! And while it has nothing to do with the thrust of this story, I cannot help but relate an episode that was storified by old chum Aden Davies. I was having lunch with Brett King, chatting about Moven. Since Moven is seen as a competitor to Simple, I naturally paid with a Simple card. Brett tweeted a picture of this, knowing that Shamir would pick this up. He did, but noticed that I hadn’t covered up my card number, which was visible in the picture. So he cancelled that card for me and re-issued me a new one. How’s that for service!

I especially like using the mobile app. Now, I’m a very happy user of my Barclays Mobile Banking app too. It does all sorts of great stuff and I use it all the time. But the Simple app didn’t do all sorts of things, it was, well.. simple. When I use my card, I get a message right away, it’s clear and quick to glance at, and I can tag things easily to help when I fill out my expenses. I love the home screen with its big “safe to spend” number at the top.

It’s not a bank, remember. But it looks like a bank to the consumers. Except simple and easy to use. It’s not a bank. It’s a near bank. And so we come to the present day with the news (and one of the best twitter comments of the year “Nobody expects the Spanish acquisition”) that BBVA have bought it.

Banking Startup Simple Acquired For $117M, Will Continue To Operate Separately

[From Banking Startup Simple Acquired For $117M, Will Continue To Operate Separately | TechCrunch]

So why did BBVA buy it? Not for the assets, I’m sure. As a financial services business, Simple is pretty small beer and does not add much by the way of leverage to the Spanish giant, which had gross income of more than $20 billion last year.

Simple is not a large venture. The truth is, that 100,000 of customers is small-community-bank territory.

[From For BBVA, Simple Deal Can’t Be About Its Business | Bank Innovation]

No, it’s not about the accounts. I think it was for three reasons:

1. BBVA are “aquihiring” top talent with a proven track record of deliver sustainable innovation and that no longer comes cheap. It has proved much harder for banks to develop innovation teams than they would like and rather than pour money down the drain trying to set up an innovation unit, it’s easier to buy one.
2. BBVA will switch the underlying bank accounts to themselves and gain expertise in servicing the associated near-bank, thereby turning themselves into a platform for more near-banking plays.
3. BBVA had read my blog posts about near-banking and adjusted their global corporate strategy accordingly (**)

Simple was a particular kind of near-bank proposition aimed at a specific demographic, but there are plenty of other segments that could be addressed in a similar way. One particular one I’ve been looking at in connection with a couple of different projects, aimed at using new technology to deliver financial inclusion as part of an overall social inclusion strategy, is for older people. Another might be students. Or perhaps one for frequent travellers, that would revisit the prepaid card that I started this story with and turbo-charge it with an app on top and a bank account underneath, with limited balances and therefore minimal CDD alone the lines of the FATF Recommendations.

This acquisition is another step towards a common banking model for the future: a bank core with payment institutions (PIs), and electronic money institutions (ELMIs) and other third-party financial services (think for examples of Zopa and Prospect and so on) adumbrating the European Commission’s current consultation on third-party access to bank accounts (the “XS2A” consultation) to form a semi-virtual organisation that is more agile, responsive and ultimately more cost-effective. All the best to Shamir and the team and a heartfelt plea to BBVA: don’t spoil my Simple.

(*) Consult Hyperion do not provide any paid professional services to Simple.

(**) note this is the opinion of the author and is no way founded in, or supported by, facts known to the author at the time of writing (***)

(***) in other words, this may not be true.