A New Breed of "Banks"

Money – it’s been around for 1000’s of years and drives most people to do things, good or bad. When you have money, you also need banks to provide a safe place for people to deposit their money. These banks then turn around and lend this money to others. This simple business model is how banks have operated for 1000’s of years and thrived on the difference of what interest they gave to depositors and what interest they received on outstanding loans. Over time, banks started to offer more and more products to generate more and more revenues. Many of these products were not that simple and in the process were given a fancy name – structured products, which just means they are customized for each customer based on their specific needs. Then BOOM, the financial markets collapsed and many of the banks faced near bankruptcy because of their loosing lending practices and their structured products which started to come undone. In the aftermath of this financial carnage a new group of “banks” are emerging in the US to get back to basics in banking.

The four that have emerged include – Bluebird, GoBank, Moven and Simple. All are pretty similar in that they have low fees, no physical locations, heavy use of technology but a couple are not actual banks. To be called a bank you need to be a member of the Federal Deposit Insurance Corporation (FDIC) which means the deposits are insured by the US Government for up to USD 250,000.

Bluebird – Bluebird is a partnership between American Express & Walmart, the distribution strength of Walmart and the credit card experience of American Express (AmEx) is what makes this offering interesting. The product is a no-fee checking account that has a debit card. The target audience is low-income shoppers who have a tough time getting a regular credit card. Bluebird is a bank since at the height of the financial crisis AmEx was turned into a bank holding company so it could accept money from the Federal Reserve.

GoBank – Green Dot first made it big with it’s prepaid cards it offered to low-income consumers, then it forayed into other parts of the banking sector. Green Dot acquired Bonneville Bank, an FDIC member bank, and renamed it to Green Dot Bank. GoBank is brand of the Green Dot Bank. The offering is similar to Bluebird in that it offers an online checking account, debit card and access to most ATM’s in the US.

Moven – Moven started out as Movenbank then changed its name because it’s not a bank. It has partnered with an unnamed FDIC member bank. Moven offers the usual banking products but really shines around the money management tools it offers. MoneyPulse is one of their tools which tells you where you are spending your money. Moven was started by Brett King who has authored several books on the future of banking, his latest book is called Bank 3.0.

Simple – Simple also started out with a different name, it was first known as BankSimple. But it also is not a bank and has partnered with The Bancorp Bank, a member FDIC bank. Early on Simple attracted a lot of attention as one of it’s early founders Alex Payne was an early employee at Twitter. Alex left Twitter to startup Simple which was seen as a stamp of approval for Simple in that it solves a real world problem. Alex has since left the company. I signed up for the service but I really don’t use it much since I don’t live in the US and most of my transactions are Rupee denominated, however the overall interface has definitely got some great eye candy.

Bottom line – Most of these new age banks are offering a convenient mobile platform via iOS and Android devices to allow consumers to interact with their bank information. In addition, most of them have spent a large amount of time and resources on the UI of their website and mobile apps. However, I still believe it’s early days with these banks and feel they need to also address the investment portfolio part as well. By adding the investment piece, it creates an end to end solution which many consumers are still looking for.