To be honest, when I saw the title of the Forbes’ article “Simple Competes On Customer Experience, Not Interest Rates,” my first reaction was ‘I don’t really care how they compete, I want to know how well they’re competing.”
In other words, I just wanted to know — after nearly seven years of existence, and two years since being acquired by BBVA — how many customers does Simple really have?
After all, the hype around the company was pretty strong for a while there, touting how it, and other fintech startups, were going to disrupt and displace traditional banks.
As I began to read the article, I harbored no delusions that I would find any references to how many customers, or how big, Simple actually is. But then I saw this:
“[Simple CEO Josh] Reich won’t go into specifics on Simple’s growth, but he did say that if it were a traditional bank it would have needed 850 branches and 6,000 branch employees to support the number of customers it has now.”
Josh went on to say, “We are investing in head count for growth, but we have 200 to 250 people.”
Cornerstone Advisors has been benchmarking bank operations and performance for nearly 15 years. So let’s use their data to help translate Josh’s statement (or claim) into customers and assets.
Employees Per Branch
First off, Josh’s ratio of 6,000 branch employees to 850 branches is perfectly in line with what’s really going on in the industry. Cornerstone’s data says the median number of branch employees per branch is around six (and declining). So Josh’s estimate of requiring seven employees per branch to support Simple’s customer base is in line with reality.
Checking Accounts Per Branch
According to Cornerstone’s benchmarks, there’s a wide range in the number of checking accounts per branch across traditional banks and credit unions, in part because many community banks are more commercial- than consumer-focused. But the average across both types of financial institution is around 3,500 checking accounts per branch.
So, if Simple believes it needs 850 branches to support its customer base, it would not be out of line to estimate that it has 2.975 million customers. Unless, of course, the average number of accounts held per customer is significantly greater than one.
Back when Simple was acquired, there were references to the company having about 33,000 customers. Thirty-three thousand to three million. Pretty impressive growth, eh?
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Deposits Per Branch
Cornerstone’s Performance Report finds that traditional banks and credit unions, average about $115 million deposits per branch. Which means that an 850-branch bank — which Simple claims to be on par with — would have about $98 billion in assets. BBVA Compass, which is part of the global BBVA bank enterprise that acquired Simple, has about $65 billion in deposits (and only about 700 branches, for that matter), which would make Simple roughly 50% larger (in terms of deposits) than its sister traditional bank.
Assets Per Branch
At traditional banks and credit unions, average assets per branch is roughly $137 million, which would make an 850-branch Simple a $117 billion institution. Or the 21st largest bank in the United States.
Assets Per Employee
Traditional banks average about $5 million per FTE. If Simple really has $68 billion in assets, each of its 250 employees would be supporting nearly $275 million in assets. How does Simple do it?!@*#!@??!!
Growing the Business
Yeah, how does Simple do it? Well, according to Reich:
“Our hypothesis is that there is a different way to grow the banking business. The traditional way is through the price mechanism. What we do to grow is invest in the user experience, primarily delivered by the Web. If it works great for 1,000 people it doesn’t cost us 10X to deliver the experience to 10,000. We’ve made a big investment in the first order costs of developing technology and in our model.”
Enrique Gonzalez, Simple’s relationship manager on the BBVA side of the house, added this:”The talent and technology would be difficult to replicate. A high percentage of the people are engineers or have strong technology backgrounds, and they all work together.”
Honestly, I don’t really know what either of those comments really means. Engineers + working together = growth? Cumbaya, my lord, cumbaya.
And is Josh saying that marketing isn’t necessary for growth? Josh says that “if it works great for 1,000 people it doesn’t cost us 10X to deliver the experience to 10,000.” How is that any different from what’s going on at Bank of America (and other large, traditional banks). As reported in Bank Innovation:
“60% of the bank’s sales are all digital now,” Brian T. Moynihan, Chairman and CEO of Bank of America, told investors. Moynihan also disclosed that about 6% of the bank’s digital sales are via mobile device, and growing at 300%,” he said.”
The Bottom Line
I’m finding it pretty darn hard to believe that Simple has grown from 33,000 customers in February 2014 to a number that would warrant 850 branches and 6,000 branch employees.