The Beginning of the End of Traditional Banking?

Steve Topper June 28th, 2011
Marketing Insights

banksimpleIt’s possible that someday we’ll look back and realize that online-only banks were the beginning of the end of traditional banking – or at least of branch banking.

Perhaps we’ll realize that the rush to mobile banking was the second major event taking us in this direction.

If this turns out to be true, then the third major event taking us down this long road is currently underway.  This next event is known only to those fortunate enough to have come across an article about a new kind of bank.

Although it’s currently in beta test mode, a website is available for those with inquiring minds.  The launch is scheduled for later this year.

While some pundits in the future might describe this transformation as revolutionary, I would describe it as evolutionary.  It will be the culmination of a series of innovative efforts over a prolonged period of time.

Anyone familiar with the work of futurists knows that these seers are not blessed with some special powers enabling them to see the future.  Their gifts consist of perseverance in the widespread collecting of data and being able to put together the relevant bits of information to paint a mental picture of what’s coming down the road.

That’s what I’m describing here – pieces of information that taken individually may not be that significant but collectively are pointing to a very different future for retail banking.

What’s interesting and most relevant today is the impetus behind this new kind of consumer bank.

According to a recent article in Fast Company magazine, a young Wall Street guy contacted a friend of his about starting a new bank.  In the email he told his friend he was fed up with his personal banking experiences – the hidden fees, confusing bank jargon, and poor customer service.

Unfortunately for today’s bankers, they’ve aggravated the wrong group of consumers – the growing legion of young techies who are quick to start their own businesses to get the products and service they feel they deserve and share them with millions of others.

Look no further than Twitter co-founder Jack Dorsey.  Fed up as a result of his weeks’ long experience trying to become a credit card merchant, he wrote the software program for Square – a low-cost, no contract approach allowing anyone with a mobile phone to accept credit card payments.  As of the end of April, it’s now the option of choice for over 330,000 merchants and growing rapidly.

We will undoubtedly witness rapid growth for this new bank launching later this year.  Already you can visit the bank’s sleek new website and put your name and email address on the invitation list.  Mine’s there along with over 50,000 eager early adopters.

The guys behind this new banking venture closed funding last August and already have a core team of eight employees busy creating a new banking experience.  Among them is a creative director whose skills are evident once you tour the website here.

Unlike a traditional bank with numerous expensive branches, BankSimple consists of three core players:

  • BankSimple which is basically the brand and customer interface.
  • Partner or back-end banks providing FDIC-insured products.
  • A processing partner to handle transactions between BankSimple and all third parties including card associations, partner banks, and ATM networks.

As for the partner banks, those selected to participate are all smaller banks that’ll be holding BankSimple customers’ money in specially-designed accounts linked to a BankSimple debit card.  A BankSimple line of credit is also part of the package.

According to the Fast Company article, the goal of the bank’s founders is to streamline the consumer banking experience by decoupling it from actual FDIC-insured banks.  This will enable employees of BankSimple to place greater focus on user satisfaction.

While no one can predict at this time whether or not BankSimple will be a major threat to today’s traditional branch-reliant banks, it would be a mistake to ignore these entrepreneurs.  Their success with consumer banking depends almost exclusively on younger, more tech-savvy consumers who have little or no history with branch banking.

Today’s younger consumers are very comfortable buying online and via their mobile phones as they know that if they choose wisely, they’ll receive excellent customer service from companies like:

  • Zappos
  • Amazon
  • J. Peterman
  • LL Bean
  • Apple
  • Ally Bank
  • And a growing number of customer-centric digital merchants

To the BankSimple guys, consumer banking is just the next frontier to be settled.

One thing is certain, the future of retail banking will not come from the moribund big banks burdened by expensive branch networks but from younger entrepreneurs in the high tech community generating new ideas like Square and BankSimple and creating new business models from them.

If you aren’t already familiar with BankSimple, consider this your wake-up call to bring yourself up-to-speed on this innovative new approach to consumer banking.  A quick Google search on the keyword “BankSimple” yields a number of informative articles for your reading pleasure.

BankSimple just might be the next step in the beginning of the end of traditional banking.

This content is accurate at the time of publication and may not be updated.