How We Built GoBank
Sam Altman and Alok Deshpande are designing a bank for a new era. The 28-year-old entrepreneurs were roommates at Stanford before dropping out to found Loopt, a mobile geolocation app, in 2005. Last year, Altman and Deshpande sold Loopt for $43 million to Green Dot, which sells prepaid debit cards.
For their new project, GoBank, which launched in June, the entrepreneurs went for stark simplicity. Overdraft fees? Gone. Same with minimum-balance fees. All the banking happens on a sleek mobile app (and a network of more than 42,000 ATMs). Recently, Altman and Deshpande spoke with Inc. about how GoBank started.
We thought there was a lot of room to innovate.
Deshpande: Last year, Americans paid $32 billion in overdraft fees. It turns out 64 percent of Americans are unhappy with their bank. A large chunk of the remainder is apathetic. We set out to change that. Most banks have a punitive model. They bring you in, wait until you run into trouble, and that's where the upside is for traditional banking.
Altman: When I was in college, I had no money. One time, I got in this situation where I was overdrawn because something hadn't been deposited, but I had no idea. In the meantime, I made eight small purchases, including drinks at Starbucks and Jamba Juice. I got hit with a $36 overdraft fee for each of those transactions. GoBank doesn't let you get in over your head.
Deshpande: With GoBank, if you don't have enough in your account, that coffee purchase just won't go through. Not to say that it's impossible to overdraft. There are still some ways because of how debit cards are set up. But in those cases, we don't charge a penalty, and we hope our customers will make us whole.
We didn't take no for an answer.
Deshpande: Working on GoBank was very different from Loopt, because we were building something very complicated that people depend on every single day. There are security issues involved, risks, laws, ethical constraints, nuances of banking. We wanted to change banking and be responsive to the consumer, but we also had to make sure it was a really safe, secure experience.
Altman: We're regulated by the Federal Reserve Board, and so we had to work with them very closely. Any new financial services product like this touches lots and lots of partners. But when we were thinking about features, we had one big rule: We weren't going to say no to anything because someone said it was hard to do.
We focused on speed.
Deshpande: We knew how users looked at mobile devices, especially while using a location-based app. They wanted to get in, get the answer, and get out.
Altman: We found that 80 percent of the time, people use a mobile banking app just to check their balance. But traditionally, you have to launch the app, enter your password, and click around. And this one simple thing takes 30 seconds. We thought, How can we make that available instantly? That's how we came up with a feature that lets you slide your finger across the bottom of the screen and see your balance immediately. Now it takes only two seconds.
Deshpande: If you're taking money out of your account, you have to sign in. If you're sending someone more than $1,000, we require a secondary confirmation via text message to further protect your account.
We built in budgeting.
Altman: We designed a lot of other great features that other banks don't have. We send you real-time transaction notices and let you get push notifications on your phone. People love that, because they know right away if there's any fraud. We let you get granular: If I want to know only about gas purchases of more than $50, I can adjust my tools to track my spending. We give you full search over every transaction ever made.
You can pay your bills on the phone. And it's free to send money to other people, in or outside of the U.S. We also totally reimagined the way a savings account works. Traditional savings accounts have rules--you can move money only six times a month. That's not what our users want. We thought, Why can't you just move money when you want, with no fees?
We got rid of what we disliked most.
Altman: We really hated the fact that as consumers, we didn't feel like we had a two-way, mutually beneficial trust relationship with banks. It starts with fees: late fees, penalty fees, maintenance fees. We cut all that out and replaced it with an incredibly simple model: no fees.
Deshpande: We don't have branches, so we have a lean cost structure.
Altman: We make money a few different ways. When you use our debit card, the merchant pays us a fee of 1 percent to 2 percent of your transaction. Or you can buy a custom debit card from us for $9. When you use an out-of-network ATM, it costs $2.50. And when you use the card outside the country, there's a 3 percent fee. But our largest revenue stream is the interchange fee that merchants pay us when you use our debit card.
Deshpande: Originally, we decided to make the service free. But people didn't trust that. They were sure there must be a catch. So, we said, "Just pay what you want." And if for some reason you don't have enough in your account to cover your tip to us, we set your fee back to $0.
Altman: We found we didn't really have to persuade consumers to change the way they think about banking. It was more like giving water to a man in the desert.