If banksimple.com is not a bank, what is it?

Question

I came across Banksimple.com, and I was wondering whether or not it is safe to entrust your money to.

The About Us page says

We partner with select deposit-taking institutions. We spend our time making banking easier for you, while our partners manage treasury and compliance. Through our partners, your deposits are FDIC insured.

and

We have an established regulatory process derived from the affiliate banking model. Modern, real-time technology connects us to payment networks such as ACH, SWIFT and paperless billing.

The above mentions an affiliate banking model. Are there any other online banks that operate this way? It seems unsafe to have an intermediary in between me and the bank actually holding my funds. What are your thoughts?

Answer 1

The model itself is fairly common for serving particular niche markets. A few other organizations which operate in similar setups: prepaid card providers such as NetSpend, GreenDot, AccountNow, etc; startups such as SmartyPig, PerkStreet, WePay, and HigherOne. Still, nobody else seems to be providing full-service online banking to mainstream customers the way we plan to.

We plan to have much better security than most banks, which isn't hard given the current sorry state of online banking in the US. And having an intermediary who's looking out for your interests can be a good thing.

David, my co-founder Josh lays out our launch plans and why we are invite-only in his latest post. In short, we made a decision to build our own call center rather than outsource it, and that limits how quickly we can bring people on.

Answer 2

Looks more like an idea for a business rather than an actual business -- especially since it hasn't even launched.

That said, it does have its merits.

• What bank actually holds the deposit funds becomes irrelevant, and may actaully change from time to time as they forge better partnerships with different banks. Think of it like a mutual fund -- the individual stocks (if there are stocks) in the fund are less important than the balance of risk vs. income and the leveling of change over the course of time.

• It offers services banks offer, without fees (at least that is the proposal) with the addition of budgetting capability as well.

It does have downsides as well

• There is an increased level of indirection between you and your money.

• They propose to simplify the banking business model, but in fact are only hiding it from you. The same complexity that was there before is still there, with the added complexity of their service on top of it. It's just a matter of how much of that complexity you would have to deal with directly.

With that in mind, I would reiterate that they are not a business yet -- just a proposed business model. Even the sign up process is a red flag for me. I understand they need to gauge interest in order to forge initial relationships with various banks, but I don't see the need for the 'invitation only' sign up method. It just sounds like a way to increase interest (who doesn't like feeling exclusively invited), and is a bit too 'gimmicky' for my taste.

But, like I said, the idea has merit -- I have my reservations, but will reserve full judgement until they are an actual operating business.

Answer 3

I don't see how this concept takes off. First and foremost, BankSimple is NOT a bank but a tech company masquerading as one. BankSimple leaves industry regulation and treasury management -- the CORE of banking, to outside parties.

We plan to have much better security than most banks, which isn't hard given the current sorry state of online banking in the US. And having an intermediary who's looking out for your interests can be a good thing.

Call me old fashioned, but I prefer to have as few stops between me and my money as possible. If not for a fear of losing it in a robbery and inability to earn interest, I'd shove it under a mattress. So why would I want to bank with an intermediary, who admittently doesn't understand how the process works? How is that "looking out for my interests"? And how is your security better than other institutions that offer 128-bit encryption and multiple security questions to test a customer's identity?

I'd like to add that not charging overdraft fees and providing lines of credit to help customers out in the event they spend more than they have is nice in concept, but what happens when those same customers do not make deposits to cover their shortfalls? When it comes to money, people will take advantage of any opportunities they have to circumvent the system. Especially if funds are tight.