The Facebook National Bank

Amid all the hoopla surrounding Facebook’s acquisition of Whatsapp, this gem of a news item didn’t get the attention it deserved:

BBVA buys banking start-up Simple for $117M

Founded in 2009, based in Portland, and having opened its (online) doors in July 2012, Simple just crossed the 100K customer mark – it has no physical branches and does not offer paper checkbooks. It has no fees and offers customers slick apps with which they can monitor spending activities. The bank’s main revenue stream is from intercharge fees from debit card usage. (SA)

The thought process for this deal was outlined in FT by the CEO of BBVA back in December thus:

Some bankers and analysts think that Google, Facebook, Amazon or the like will not fully enter a highly regulated, low-margin business such as banking. I disagree. What is more, I think banks that are not prepared for such new competitors face certain death.


The competitive response is believed to be rooted in big-data:

Yet while this is disconcerting for banks, the good news is that we still have one significant advantage, which is the vast array of financial and non-financial data that we accumulate. This information reveals a lot about habits, tastes, needs and aspirations. Banks need to turn it into knowledge and use that knowledge to provide users with exactly what they want, precisely how and when they need it.


The fact of the matter is that this disruption is already under way. China’s Alibaba became a $16 billion lender in less than three years, and China’s largest seller of money market funds in only seven months. Accenture estimates that competition from non-banks could erode one-third of traditional bank revenues by 2020. (HBR)

The risk for banks is that new competitors will consign them to a limited role as back-office utilities.

The competitive landscape

Payments: PayPal, Square and Stripe.
Retail: nearly one-third of domestic Starbucks revenues are paid through its own loyalty cards.
Debit card: Google Wallet. Walmart’s prepaid card that functions like a debit account captured more than a million customers in less than a year.
Checking account: T-Mobile launched a new checking service with a smartphone app and ATM card.

The competitive response

As non-banks stake claim to traditional banking functions, will banks move in to the retail turf?

Coupons: Garanti, one of Turkey’s largest banks, offers a free mobile app that gives customers personalized offers and advice based on their location and past spending.
Loyalty: Bank of America analyzes transaction data to give customers cash back on transactions at frequently used merchants.
Information: BBVA has long made available to its US customers information on the actual selling price of cars (as opposed to list prices)

The Indian scenario

An FT article back in November had this to say:

The RBI also plans to grant more regular licences for a broader range of financial institutions, providing what Mr Rajan described as a “substantial change” to bank structures.

“We could have wholesale banks, we could have mobile [phone] companies doing some banking activities, within certain constraints. We could have small banks, which we currently don’t allow, and we could allow co-operative banks,” Mr Rajan said.

Connecting the dots, I think its time we have a VC funded online-only bank – aka, The Facebook National Bank.

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