Opinion

Felix Salmon

Why BBVA is good for Simple

By Felix Salmon
February 20, 2014

Simple began in July 2009, but it took three years before it was ready to actually start sending its debit cards out to members of the public. And now, after just 18 months as a scrappy independent financial-services provider, it’s being bought, for $117 million, by Spanish banking giant BBVA.

This is not the billion-dollar exit that Simple’s VC backers dreamed of; one source told Ellis Hamburger that “they had kind of run out of steam” of late. But that might actually be a good thing, in the long term, for Simple: I suspect that Simple is actually going to be much better off within BBVA than it was up until now.

The first and most obvious reason is that Simple is now, finally, what it always wanted to be: a bank. When CEO Josh Reich first started talking to me about his retail-banking dreams, in September 2009, he didn’t want to be a pretty app sitting on top of someone else’s bank: he wanted to be a bank. And now, finally, that’s what he is.

BBVA is also, in many ways, the ideal parent for Simple. It’s technologically forward-thinking, which means it’s going to be more receptive than Simple’s current partner, Bancorp, in terms of providing the technical ability to do lots of clever, real-time things. It also gives its subsidiaries a huge amount of autonomy and freedom: it has a holdco structure, rather than the kind of command-and-control structure you might see at, say, Citibank. It is a very long-term investor: it’s buying Simple for ever, not so that it can flip it for a profit in a few years’ time. And finally, it is one of the most international banks in the world, which is going to make Simple’s global expansion a lot easier.

Simple’s business is highly capital-intensive, and BBVA has capital: the purchase price is already more than the $100 million that BBVA promised last year to invest in innovative companies, and you can be sure that BBVA is going to invest a very large chunk of money in Simple after having acquired it. That money isn’t going to require VC-level returns; BBVA will, rather, ask only that it creates an innovative new bank which can expand globally and which the rest of the BBVA network can learn from. (Certainly the Simple card is leaps and bounds ahead of BBVA’s rival SafeSpend card.) To date, Simple has raised a total of $15.3 million in capital; BBVA’s total future investment in the company is likely to dwarf that sum, and allow Simple to create products — like its long-promised joint account — much more quickly.

One criticism of this deal is that it reduces consumer choice, but I don’t buy it. For one thing, very few people are choosing between Simple and Compass, BBVA’s US arm. And for another, insofar as there are such people, the choice still exists: Simple will remain a standalone entity, and will compete with Compass as much as it does with any other bank.

That said, there are always downsides to any deal. For one thing, Simple will lose a very large chunk of its current revenues: as part of a big bank, it will now be subject to Dodd-Frank limits on debit interchange fees. It will also, as a bank, have much more regulatory oversight than it’s had up until now — and regulators always slow down the pace of innovation. (Rightly so.) Will Simple’s friendly customer service and full-of-personality Twitter feed be able to manage the onslaught of compliance officers that this change is going to bring? I hope so, and Simple certainly wants that to be the case, but it’s far from certain.

Meanwhile, Silicon Valley has moved on, with payments companies, rather than banks, getting the bonkers valuations. (Stripe: $1.75 billion; Square: $5 billion.) Simple has a payments capability of its own, but it’s still nascent, and it does seem that banking doesn’t scale quite as quickly as the VC world would like it to. After all, it’s very rare that people change their bank: doing so is much harder than, say, switching your credit card.

Building a huge new bank takes more time, and more money, than Silicon Valley likely has. BBVA, on the other hand, has both the patience and the capital to make Simple’s dreams come true. That doesn’t mean that Simple is going to achieve all of its ambitions, of course. But it’s probably better-placed to do so today than it was yesterday.

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