The majority of this post was written Wednesday night at 38K feet. I held off publishing earlier because Simple’s being acquired by BBVA was pertinent to the conversation.
Wednesday, February 19, 2014. Somewhere Over Wisconsin, Iowa, and Nebraska
I am really excited. Like, too much caffeine excited. Or perhaps sleep deprived excited, it’s hard to tell the difference lately. The past few months have been incredibly invigorating, as we’ve completed important app updates and initiated long term planning for the next few year’s digital strategy at our bank’s home offices. Lots of changes going on would be an understatement. But that’s the financial services industry right now – lots of disruption.
I’ve also been very fortunate to have had weekly engaging conversations with various founders and fintechers, a variety of interesting opportunities to learn from others in the space and contribute ideas and content, as well as what has seemed like a continuous run of good news for so many of my friends in fintech.
The year has been personally rewarding as well. I’m out speaking a bunch more and I’m helping plan a few fun industry conferences. One of the four companies I advise, CUneXus, will present at Finovate Spring and two companies I advise (CUneXus and Nerture) will be presenting at Bank Innovation’s DEMOvation. I’m really excited for them both.
So you can see it’s been a busy year already. This week was no different.
SFO – BOS – SFO NextBank Advisory Board Meeting
In the past day, I’ve travelled between San Francisco and Boston and back (in the air almost as much as on the ground it seemed), read Hatching Twitter cover to cover (about time, right?), saw some snow for the first time in quite a while (I’ll try to send some back home – we need it in California), and spent much of the day with my fellow Advisory Board members planning the next iteration of NextBank (today’s meeting included Brett King, Jim Marous, Beth Lee, and Phil Swisher – and with additional input coming from JP Nicols and Ron Shevlin – a great group to be involved with).
After talking about many great potential topics and speakers and different ways to position NextBank within the crowded conversation of the future of financial services, we got on the subject of external industry innovations. I jumped in by extolling some of my ideas on how IFTTT and actionable personalization may change the way we think about financial services delivery (extending the push toward a Primary Financial Application connecting actionable services through APIs). We talked about future revenue models, the internet of things, the importance of visualization, of the evolution of customer experiences, and how to best engage an audience used to an onslaught of seven minute demos and vendor case study after case study. We even had a bit of a tussle about the future use of bank branches. Imagine that. Overall, a great session meeting to discuss topics, agenda, and planning for the event.
Learn more about NextBank - hopefully we’ll see you in Boston in June.
WhatsApp + Facebook: What’s That Again?
My twitter blew up at 5:08 ET after Techcrunch posted the first of what would soon be dozens and dozens of quickly written articles. This was just about ten minutes before I boarded my flight home to the Bay Area. Great, it looks like I’ll be paying for on-board wifi again while watching the Olympics (thanks VirginAmerica for both options).
WhatsApp Acquired By Facebook For $19 Billion read the first article. Then from the Verge, then more from Techcrunch…it didn’t stop.
Boom. Zuck drops the mic. Nice job Mark.
Not SnapChat. No, the $3 billion that seemed so big was obviously far too small.
WhatsApp. $19 freaking billion dollars. Holy shit.
After reading on the flight over to Boston about Zuckerberg losing out on his attempts to acquire Twitter, and after SnapChat’s recent very public rebuff, the Facebook founder clearly is trying to re-establish his deal-making prowess, stealing some of the other valley giants recent thunder. Zuckerberg action showed he will do everything to keep Facebook relevant. He wants Facebook to be the first 2 billion, 5 billion, 7 billion user company. I hoped this works to revive whatever mojo he needed recharging after being rejected one too many times in his own living room or while on one of his Jobs-like walks with other young founders (What is it with these guys and walks anyway? From plotting revolutions to coding revolutions, coffee shops are the source of all disruption).
My favorite tweets about the WhatsApp deal came from Box’s Aaron Levie, who said “Zuck is literally the most badass ceo of all time. This guy doesn’t screw around with innovators dilemma” and from Startup L. Jackson “A good founder plays where the Zuck is. A great founder plays where the Zuck is going to be” as well as “And that is the sound of every startup in the Valley pivoting to messaging.” Indeed.
Clearly the valley was abuzz.
What’s Special About WhatsApp?
What likely worried Zuckerberg was that WhatsApp had a more compelling product than SnapChat, a cross-device dead simple chat product that appealed to a much larger and more diverse global audience. One that was mobile only, and one that was on a trajectory to be the first billion user mobile first application (the graph above = hockey stick). After reading Wired UK’s great overview of WhatsApp and its founders, I really get it.
I can certainly relate to the founders message about wanting to build a simple tool that facilitated communication between users across networks that could also be archived, because it was most often used between friends and family (not that I ever bought into the idea that SnapChat was all about sexting teens, but it’s stealth nature of disappearing images with squiggles did rule out grandma using it a little bit). I could also relate to the idea of of the founders not wanting to advertise (I’ll have to create a whole other post about transaction based rewards and alternative revenue paths and transaction based monetization – I don’t think future revenues are obvious…and I think WhatsApp holds some clues). After reading that Wired profile, I have a lot of respect for both WhatsApp founders.
While images (and voice) are a huge part of WhatsApp, it was a very different model than what the narrower SnapChat offered. Rather than focus on deleting your past, WhatsApp focuses on facilitating your present, curating a dialogue of your connections from your contacts across devices, and this simple app helps preserve those communications (and why not integrate to dedicated cloud storage and take that one step further, but I digress).
WhatsApp Lessons For Financial Services?
What are some lesson for banks and payment providers? Really, it’s a continuation of disruption’s course de rigueur. WhatsApp, driving more messages than the entire SMS network and likley more shared images than Facebook and Instagram combined, reflects the larger changes and the simpler needs of communication trends. Other interesting points about the WhatsApp deal (especially for app developers and their UX counterparts) were brought up by Andreessen Horowitz‘s Benedict Evans on the valuation and what it means in the larger picture.
(The WhatsApp acquisition) is interesting in all sorts of ways – it illustrates most of the key trends in consumer tech today in one deal. First, it shows the continued determination of Facebook to be the ‘next’ Facebook….
Second, the winner-takes-all dynamics of social on the desktop web do not appear to apply on mobile, and if there are winner-takes-all dynamics for mobile social it’s not yet clear what they are. There are four main aspects to this:
- Smartphone apps can access your address book, bypassing the need to rebuild your social graph on a new service
- They can access your photo library, where uploading photos to different websites is a pain
- They can use push notifications instead of relying on emails and on people bothering to check multiple websites
- Crucially, they all get an icon on the home screen.
Any smartphone app is just two taps away – a desktop site can crush a new competitor by adding it as a feature with a new menubar icon but on mobile there isn’t room to do that. Mobile tends to favor single-purpose, specialized apps.
Third, the sheer scale of the numbers involved is a good illustration of what the shift to mobile means. I produced a presentation here to try to drive home this point: mobile is the next computing platform and it is several times larger than the desktop internet.
There are now roughly the same number of smartphones and PCs on earth – those PCs are mostly shared and immobile or locked-down corporate boxes, while the smartphones are mobile and personal.
Meanwhile, the widely-discussed collapse in the cost of creating a startup in the last decade combines with both the much larger scale of mobile and the routes to market and virality offered by mobile platforms to mean that if you’re very good (and lucky) you can get to astonishing scale in a short time. This scale is at the heart of the valuations we’re starting to see – WhatsApp is probably now sending more messages than the entire global SMS system.
Video, Imagery, Simplicity, And User Focused Design
Brett King brought up another salient point during our NextBank planning session about the future belonging more and more to video (and I’d echo that with the continued onslaught of photos, shared imagery). People want to tell stories, share their own stories, and connect…and more and more that is a visual connection. Where is visualization in banking? What’s the SnapChat, WhatsApp equivalent in financial services? We have a few neo-banks like Simple leveraging embedded images (to provide connections to receipts, or photos associated with experiences tied to transaction level data), and we have some pretty established banks leveraging Mitek and Kofax to leverage the camera, but I think there will be a host of image related financial innovations this year. People underestimate the power of personalized visualization within financial application user experience design.
After more conversation, Brett challenged the group with ‘where is the Elon Musk of financial services?’ Considering Elon helped bring about PayPal, I’ll let him slide a bit on that one…but I get the idea. And I think we’ve already had the Steve Jobs of banking, as the iPhone simply changed everything (and there’s only one Steve Jobs, sorry @jack). I’d be happy if we had a Mark Zuckerberg of banking, or even the equivalent of WhatsApp’s founders as builders of financial applications.
In some ways we do. At least, we collectively have the intellectual fire power being aimed at cracks in the banking system. I meet these people all the time. Founders of payment companies, small teams of developers, corporate rebels pulling innovation along within financial institutions of all sizes. Some of their efforts are getting a lot of traction with small to mid-size FIs (my friends at perennial Finovate Best of Show Money Desktop come to mind), others are being acqui-hired by incubators or venture arms of bigger (often international) banks (from Finovate companies to two person shops, great little applications abound), others are making inroads within banks and larger fintech players.
That’s all great, but it’s still not enough.
With the pace of disruption in payments alone (there are now over 977 payment startups on AngelList alone), talented developers are looking at the possibilities to improve banking in many interesting ways, as I’ve detailed pretty well in what some people call my Manifesto for Financial Services. Why do we make financial related experiences so difficult? Why is the U.S. the most backwards, least innovative financial landscape in the world? OK, that’s a little harsh, because there are a lot of great financial innovations slowly moving this great battleship, but come on. Signature cards, three day transfers, complicated product sets. And as you move from retail to small business to corporate and wealth, it only gets worse.
Fintech Investment Starting To Heat Up
The amount of fintech deals by VCs last year was around what, $2 billion? And the industry we’re talking about disrupting is multiples of trillions? There is a disconnect. Maybe disappearing images and multi-national multi-network chats are sexier, but I’m thinking 2014 is going to see a lot more investment in both fintech and ancillary services in the financial ecosystem. Just like enterprise apps, financial services may not have the glitter, but when you’re talking about experiences that touch multiple billions of people on the globe, there’s a lot to potentially tackle…albeit with plenty of profit for embedded players and niche disruptors. While the amount of movement toward larger disruptions in the financial space is moving toward simpler experiences that benefit the customer, that enhance the customer experience, it’s still not fast enough. Not at the speed driven through changes in customer behavior driven by social and mobile experiences.
Like Facebook, payment providers and financial giants will be making more investments to acquire people and truly build great experiences. (When I talk about Simple a bit later, this tweet came to mind - click through and follow this thread…VCs are very interested in financial services…expect a lot more interesting deals in the coming years).
My last tweet before I boarded my flight to Boston:
WhatsApp. Meh. We'll stick to this banking disruption thing. Who needs $16B anyway when you're talking trillions. 😏 Wheels up. BOS-SFO.—
Bradley Leimer (@leimer) February 19, 2014
You don’t have to be a twenty-something founder (or thirty or forty year old founder as in the case of WhatsApp) to be excited about that. It’s not about a billion dollars (or 16 billion) being cool anymore, it’s about changing the role of money in society. Like the power of social, mobile, and technology trends enabling and wrapping themselves around changing human behavior, this revolution is already happening. Most of us are merely foot soldiers in this great endeavor, but change in the financial services space is only starting to accelerate.
We ain’t seen nothing yet. That’s exactly why it’s exciting.
And then the next day we woke up to the news about Simple.
Thursday, February 20, 2014. Somewhere On Highway 80 With Simple
I’m driving into the office and my Twitter feed erupts again with the Simple news. Here we go again. Different valuation, different model, different scale, but the inevitable comparisons and navel gazing. Obviously very different topics, but almost as interesting to those of us who have rooted for Simple from the start. For me, a sort of melancholy ending.
What should we learn from Simple-BBVA partnership? Start at how the company was formed. Like many people involved in fintech and digital strategy, I was very excited and supportive when Simple was first announced. I always felt they could carve out a successful niche in banking, whether they partnered with a bank (or even several), established their interface as a white label offering, or if they took the time and considerable effort to get a full banking license.
What the team at Simple likely discovered is what everyone in the industry already knew: it’s hard to be a bank (or even a payment provider due to the regulation and transmitter license requirements), it’s hard to partner with banks of almost any size and get beyond their risk aversion, and it’s even more difficult to start a de novo bank with the capital requirements and regulatory burden. This is the case even for a branchless digital only de novo. So their pivot to partner with Bancorp Bank made perfect sense.
Simple’s journey in building out a savings focused application with limited negative customer impact was inspiring. As was their focus on simplified onboarding (with a cheeky waiting list to boot), welcoming Apple-like debit card packaging and delivery, trickle of application updates bringing thoughtful touches of user-focused innovation (Safe to Spend, debit card toggle, user embedded transaction based images, Dropbox integration); it was all there, with much more in the hopper. Then you add a non-bank like transparency and personally engaging un-bank-like social media strategy on top of customer focused simplified experiences – this was a winning combination.
I know very few people I truly respect in the industry that didn’t appreciate what Simple accomplished in the past four years. Josh and Shamir simply made banking a better place.
While critics took their swipes (and some things could have certainly been improved), Simple customers didn’t care. Nor would they even know, because critics were generally from the industry Simple was attempting to disrupt, and average consumers outside of industry weren’t going to find much disparaging coverage in the mainstream press.
The eventual issue likely came down to running out of money as Simple required additional investment to grow. Burning through their initial $15-16 million investment, the revenue model needed to expand as much as their team in Portland. With a transparent goal of reducing bank fees, credit products and traditional loan income needed to be bolted
On. A deposit focused NeoBank could not live on interchange alone.
Do I think Simple had been quietly shopping itself for much of the past year? I’ve had several people tell me that, but I don’t know for sure. They needed additional investment to grow, that’s all but certain. They needed an expanded customer base to grow profit from key credit segments, and a critical flush of cash or outright purchase made perfect sense. I’m surprised it hadn’t happened earlier to be honest.
Something needed to change.
BBVA + Simple: What Next?
What should we learn from BBVA’s acquiring of their new trinket? That the cofounders are great salesmen for one. They got one hell of an valuation for such a small customer deposit base in my opinion (update: more people seem to thinking was too low). There’s been plenty of coverage of their price per user, and far too many comparisons to WhatsApp this week. It’s just a little silly to compare the two, but in some ways the lessons are the same: building simplified digital experiences, especially in financial services is critical to institutional survival.
Is BBVA trying to build a global direct bank brand through Simple? Possibly, at least they’ll now need to work with the Simple team to figure out how to scale this in multiple markets. Would this compete with BBVA Compass? Certainly, but who cares? Let customers choose their own flavor. Markets will do the rest.
Was it an acqui-hire for the 90-plus Portland based Simple team? With the rise of more and more direct digital only versions of foreign banks, BBVA is smart to lock in this talent for a while and learn from their efforts. My only fear is that with the inevitable departure of the founders, what has really been gained? More in that in a minute. The team at BBVA is a technology forward, aggressive minded Spanish bank with a broad global footprint. Like Citi Ventures, Amex, NAB, Standard Chartered, and countless other bank incubators and innovation arms, early development fintech firms and leading technologists are being courted and constantly evaluated. The Simple team was a valuable prize.
We’ll likely see much more acquisitions of this type in the next few years.
There Will Be Blood: Part II
Simple’s acquisition further proves to me that the coming contraction in the banking industry is not only real, but this reality should drive bank’s primary strategy to focus in building scale and profit through digital (this contraction is here to stay, whether through unprecedented M&A, mass customer migration toward larger deep pocket national and super regionals, or the rapid influx of foreign banks like BBVA, Santander, and BNP Paribas. Will BBVA + Simple become a new powerhouse bank, challenging top 10 global financial brands? Maybe. But does it matter when in less than ten years time, most banks in our market will have to be over $50 billion in assets just to compete for relevancy? That doesn’t leave very many financial institutions from the sub-14K we have today. Moving right along.
Other quick lessons from Simple’s acquisition: Reducing friction, adding transparency, and driving toward customer focused design within beautifully crafted applications is critical not just for messenging or social media apps, they’re a necessity for financial institutions as well. Social media in financial services should be fun, and focused on solving a customers problems, engaging customers in personal ways, and is a 24/7 role. Banking can be inspiring as long as the people building the bank are as well.
You know from this blog (and from Twitter) that I am a huge Simple supporter. I’ve had several conversations and countless chats on Twitter with Simple’s co-founders Josh and Shamir over the years and I always found them incredibly genuine, passionate, focused, and acutely aware that Simple shifted some of the conversation around innovation within financial services. Whether the story of Simple will go down as part of their founder’s myth, or whether they continue to make a dent in the banking universe remains to be seen. I, for one, see their influence in the financial space as only beginning. And we should be inspired and thankful for it.
My congratulatory tweet said something to this effect: Thank you @i2pi (Josh) and @shamir_k and the @simple team for building a bank that ‘doesn’t suck.’
We should all be focused on a similar mission.
The email that started Simple…hopefully something that will be tacked up on the wall at BBVA (and a few startups I can’t talk about).
Facebook buys Whatsapp for $19 billion: Value and Pricing Perspectives (Aswath Damodaran)
WhatsApp And 19Bn (Benedict Evans)
WhatsApp: The Inside Story (Wired UK)
How Things Change (Techcrunch)
5 Lessons Bankers Can Learn From WhatsApp(Jim Marous)
The Next Chapter (Simple Blog/Joshua Reich)
BBVA Buys Simple in Path to Digital Transformation (Bank Technology News)
Why BBVA Is Good For Simple (Felix Salmon)
Simple: In Name Only (Ron Shevlin)
Simple Acquired For $117 (Techcrunch)
For BBVA, Simple Deal Can’t Be About Its Business (Bank Innovation)
BBVA’s Simple Purchase Reflects Mobile Banking’s Sizzle (American Banker)