Real Simple Banking in the Most Complicated of Times

A start-up hopes to ride the backlash against big financial firms

In the basement of a Brooklyn brownstone, two 31-year-olds have spent the year building the next great American bank. It won’t have tellers, TV ads with handsome couples, well-lit branches, a trading division or even fees, except for the odd international wire transfer.

In the BankSimple office on May 21, Josh Reich, mostly bald, wearing stubble, nice Brooklyn glasses and an orange polo shirt, and Shamir Karkal, at a desk about half the size of his partner’s, said the idea is to go back to old-fashioned Main Street banking, but to do it with a new kind of gorgeous simplicity on the Web.

“It’s not a hard job,” Reich said, “unless you become really greedy.” When BankSimple debuts later this year, customers will deposit checks by taking pictures of them on smart phones; take out money fee-free from ubiquitous ATM networks like Allpoint; and have one card that handles savings, credit and checking.

Less than a week after the Senate passed its gargantuan financial reform bill, it’s an interesting time to be a banking upstart. Last year, banks brought in an estimated $38.5 billion on overdraft fees, the money they charge customers when balances are exceeded, an example of what Reich sees as the oligarchs’ Shakespearean-scale dreadfulness.

Without having to worry about branches, his idea is to just make money from plain lending, and from the little slivers that retailers give up when cards are used for purchases. “You have some people who want to save money, some people who want to borrow money,” Reich said. “It’s not that hard.”

But beside the fact that people might not want to trust 31-year-olds working out of a home office, BankSimple won’t actually be a bank at all. Instead of going through the long and strange process of chartering their own institution, the start-up will use FDIC-insured partners to handle everything on the back end.

“Coming from Twitter, where I built up their platform,” said Alex Payne, 26, who left that website to join BankSimple as a co-founder last week, “getting people to understand platforms and products, it takes a little bit of work.” But the three feel that if they can provide people something that’s minimal, beautiful, helpful and smart, they will come. “We’re taking this opportunity,” Reich said, “to do something that’s beyond us.”

Last September, just as Reich was starting to think about BankSimple, he got an e-mail from JPMorgan Chase that said his account had been overdrawn: He went to the website and saw they had put his payments through twice. He called and was sent to the online banking group, which transferred him to the credit card people, who said the problem would take four days to solve. He waited and called back, then was told there was no receipt of his original call. He was sent to the home equity group because the problem also involved mortgage payments. “It took them three fucking weeks,” he said. “At the end, they sorted it out and said, ‘Yeah. It happens all the time.’” The pair does not have warm feelings for most online banking. “You have all these really little pain points that are fundamentally caused by just crappy technology,” Reich said. “So we wanted to fix the technology that impacted customers’ lives, and that was the online experience, and that was the costumer service.”

For starters, there won’t be overdraft fees: The bank will automatically draw down savings, or extend credit, if a balance is exceeded.

More importantly, the website will look like, say, a very painless Tumblr page. On the other hand, Reich said, signing up at Bank of America “drops you back to like 1993.” Community banks have their heart in the right place, he said, but can have even more problems with technology than the big ones. What he likes best is something like ING, although it’s not quite meant for daily banking. He’s even unhappy with kinks in the system at USAA, his favorite bank.

A revised demo version of the BankSimple site will be ready around July for the next round of fundraising, but the history of financial Web start-ups is not good.

Still, in the midst of financial regulation, it could be good to be new. When the Senate lowered the fees that merchants pay to process debit transactions, for example, the general take was that banks might make up for any lost revenue by stripping away perks and inserting new charges. “They’ll move away from fees people don’t notice to fees that people do notice,” said Jerry Neumann, the new bank’s first serious investor, “and that will be good for BankSimple.”

Neumann, the former managing director of Omnicon’s interactive media investment wing, was given the title of chairman. “I invested on two guys and a PowerPoint. Actually, I’m not even sure that they had a PowerPoint,” he said. “The thing I like about it is, these guys really want to change the world.”

Still, he had known Reich for a while; Payne had not. “A friend of mine, another techie dude out in San Francisco, Tweeted—appropriately—a link to what BankSimple was doing,” he said. “In the last few years, for the first time in my life, I had a need for a decent bank. I hadn’t been living paycheck to paycheck. And I hadn’t been satisfied with my current bank.”

He e-mailed a request for a BankSimple invitation. The pair had been responding to them personally, so it took a while. It was Karkal’s turn to write back, and he said to say hello if he ever wanted to. Payne replied that he knew a lot of tech types if they had a need for them. Reich got in touch a day later.

“Everyone has been really enthusiastic, much more enthusiastic than when I signed on at Twitter, actually,” he said. “No one has said, ‘I absolutely love everything about my bank. And you’re an idiot for going to work on this.’”

What they have said, especially on techie websites that announced his move, is more traditional. “I’m sorry, but I want my bankers to be grave old men in suits,” one commenter wrote. “I also want my bank to have offices all over the world and I want to know that they are handling money many hundreds of times larger than whatever I have.”

“You’d think that the large banks would have just all the trust in the world for their long history, going back to the robber barons or whatever,” Reich said. “And they haven’t done a very good job of that.”