Banks need to build better apps … or buy them


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Increased competition from challenger brands is disrupting the financial industry. Transparent digital banking has a long way to go. The recent acquisition of Simple by BBVA illustrates the importance of this movement and what it may take for banks to make it happen.

By Alex Johnson, Marketing Specialist at Zoot Enterprises

The recent acquisition of Simple by BBVA is a perfect example of the changing role of traditional banks in the financial sector. There are many different opinions on how much value BBVA will extract from Simple for its $ 117 million investment – Simple employees, their customers, their technology, or even just the Simple brand?

It could be as simple as BBVA to understand where the future of the bank is heading and that the expertise to make it happen lies outside their walls.

A simple premise

Let’s start with the underlying philosophy that Simple was founded on. In an email that Joshua Reich (the CEO of Simple) sent to his co-founder in 2009, he laid out what he believed to be the four core functions of the bank. Here they are in the words of Josh Reich:

  1. A place to keep my money so I don’t need an oversized wallet or mattress
  2. Electronic payment and transfer interfaces
  3. Ability to lend my money to others in exchange for a risk-adjusted return
  4. The opposite of # 3 = to borrow

Based on this incredibly succinct view of what a traditional bank does, the co-founders of Simple started to create a beautiful digital banking user interface that traditional banks could connect to to provide these basic functions in a way. radically simpler. Although Simple was not able to attract as many traditional banking partners as it initially anticipated, it was ultimately able to list The Bancorp Bank, a regulated bank specializing in white-label their services, as partner in 2011. With this partnership, Simple rolled out a digital-only current account and debit card product that featured a sleek and easy-to-use interface, remote deposit capabilities, and a host of other small but fine features. thoughts. In two years, they have signed 100,000 clients.

( Read more: Easy banking: the simple strategy )

A new model

The success of Simple and the validation of that success that BBVA provided raises an interesting question – a question Josh Reich asked in 2009 – what does it mean to be a bank? To answer this question, think of banks as platforms.

This can be further illustrated using a simple analogy: the iPhone. At the most basic level, the iPhone is three things:

  • Platform – This is the basic iPhone hardware (touchscreen, battery, accelerometer, GPS, Wi-Fi chip, camera, etc.) and the basic operating system (iOS).
  • Capabilities – Activated by the underlying platform, these are the basic functions of which the iPhone is capable. This includes things like taking pictures, connecting to the internet, and finding your location.
  • applications – Different combinations of iPhone capabilities provide specific user experience and value. On an iPhone, there is an app for everything: making movies, measuring if something is level, or running over pigs with angry birds.

You can apply the same scheme to banks:

  • Platform – A bank’s “platform” is its banking charter, its federally insured deposit pool, its expertise in risk pricing and lending, and its physical and technological infrastructure.
  • Capabilities – The capacities of a bank come from this underlying platform. These are precisely the functions Josh Reich described in his email: holding deposits, facilitating payments and granting credits.
  • applications – The applications offered by a bank are the end products with which consumers directly interact in their daily lives: checking accounts, CDs, credit cards, installment loans and investment accounts.

( Read more: Trendwatch: Mobile-Centric Bank among the first in the United States )

So what…?

What did Simple really accomplish? They didn’t build a new platform or invent new core banking capabilities – it all came from their partnership with Bancorp Bank. They just built a slightly different and more refined set of banking apps. To use an iPhone app analogy, they replaced Tetris and Bejeweled with Candy Crush.

This is a subtle but important distinction that may have been overlooked in some of the initial coverage of the BBVA acquisition. The little things that go into the design of a product, the little touches that consumers might not even consciously notice – those things really important. In Walter Isaacson’s Steve Jobs biography, he talks a lot about the idea that consumers attribute the quality of a product’s appearance or packaging to the quality of the product inside. In fact, people judge books by their covers.

What if Simple hadn’t rewritten the book? They gave the book a much better cover, and that’s why BBVA got them.

What does this mean for the financial sector as a whole?

In an American Banker article, Bradley Leimer wrote:

We’re moving from a banking relationship defined by the goal of being a client’s primary financial institution to one where we focus on becoming their primary financial application.

BBVA has announced that it will eventually transfer Simple customers from their Bancorp Bank deposit accounts to BBVA deposit accounts. The front-end experience doesn’t change, just the underlying platform. Do you think they will lose Simple customers because of this change? It seems unlikely.

Financial institutions will find it increasingly difficult to build profitable, long-term customer relationships without great financial services applications as the world moves in this direction. BBVA understood this well. They understand the threat posed by companies outside the financial sector because of their expertise in building great consumer applications. Indeed, in a recent Financial Times editorial, BBVA CEO Francisco Gonzalez wrote:

“Some bankers and analysts believe that Google, Facebook, Amazon or others are not going to fully enter a highly regulated, low-margin business such as banking. I do not agree. In addition, I think that banks that are not prepared for such new competition risk certain death. “

The acquisition of Simple by BBVA demonstrates their willingness to prepare for this new era of application-based competition. It will be interesting to see if the rest of the industry follows their lead.


Alex johnson is the Marketing Specialist at Zoot Enterprises, a global provider of advanced loan origination, account acquisition and credit risk management solutions located in Bozeman, Mont. The company has long-term relationships with influential financial institutions around the world, including leading banks, automakers, retailers and payment providers. Follow Alex on Twitter. You can find more information about Zoot opinion leaders on the website ZootBlog.

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