Forty percent of americans say they have very little confidence in traditional financial institutions, according to a survey by the global PR firm Edelman. About one-third say they have more faith in PayPal and other online services, according to a survey by Cisco. And by 2014, an estimated 80 percent of families led by Gen-Yers will do their banking online, Forrester Research has found.
The Inspiration: Joshua Reich's disenchantment with American banking set in when he and his new wife were sorting out their finances. Their bank was so stingy with information, they could barely get a handle on it. Then there was the 36-page preamble of terms and conditions for his checking account and the mysterious charge to his savings account that Reich couldn't clear up because no one at his bank would answer the phone. For Reich, who previously ran a data-mining consulting firm and an equity research group, those experiences were especially harrowing for being novel. In Australia, where he grew up, "interactions are so much simpler that I never had to think about my banking relationship, which is a good thing," says Reich.
The Business: When it launches, in 2011, BankSimple, a start-up in New York City, will provide online banking services designed to be easy and transparent. Savings, checking, and other financial products will be accessible through a single card, and there will be no fees for things like opening an account or overdrafts. To provide cash and FDIC coverage, BankSimple is partnering with other banks.
How It Got Started: Last summer, Reich and co-founder Shamir Karkal launched a website and asked visitors to sign up for an invitation to join BankSimple. More than 20,000 have done so, and the company has contacted more than 8,000 of them, using one-on-one interviews as well as multiple-choice surveys to solicit input on features and policies. This has helped the founders create a detailed psychographic profile of the BankSimple customer. "We've come to think of these people as the 'financially guilty,' " says Reich. "They are college educated -- 27 percent have some form of postgraduate education. They read newspapers and financial blogs. They listen to Suze Orman. So they know what they should be doing with their money -- moving money out of checking and into a time deposit, for example. But they're not doing it, because it's complicated. And they feel bad about that."
To allay those concerns, BankSimple will use a predictive banking model, in which consumers use one card for everything and the company draws funds from whichever account -- checking, savings, credit -- produces the best yield. It's similar to a popular financial product in the U.K. that consolidates balances from multiple types of accounts and automatically moves money around to ensure that customers pay as little interest, and earn as high returns, as possible.
The Result: Not even out of the gate, BankSimple has stirred excitement among potential customers and the press. Reich and Karkal, both first-time entrepreneurs, attracted high-profile Twitter developer Alex Payne to join the founding team and have raised an initial round of $3.1 million from First Round Capital, IA Ventures, and others.