Bank Simple, Email Hard

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Not that he needs my sympathy, but I kinda feel bad for Simple CEO Josh Reich. He made a simple mistake, and is paying for it for with some unwanted publicity. He mistakenly emailed an internal document to a reporter from some publication called Quartz, who–surprise! surprise!–published the not-so-ready-for-prime-time statistics, and claimed that Simple “seems to be struggling to sign up customers.”

The reporter cites, in his article, an American Banker article published at the time of Simple’s acquisition by BBVA Ventures–not the bank itself, as someone who is smarter (and dresses far better) than me recently pointed out to me–that indicated that Simple has roughly 100k customers, making the acquisition cost about $1,200 per customer.

The internally-intended Simple document that the reporter had dropped on his virtual lap said, however, that Simple has a little more than 33k active customers, and that growth in new customers and deposits per customer are slower than expected.


In a blog post published in response to the reporter’s article, Reich defends the company’s apparently more stricter definition of active customer (which takes into account swipe frequency and deposits vs. one financial transaction per month, which Reich asserts is the “traditional” definition of an active customer.

Reich goes on to say that:

“While the banking industry spends about $150 to acquire a new customer, we spend a very small fraction of that because we’ve built a product that our customers actually want.”


My take #1: Reich’s view of how other FIs define active customers is misguided–but that’s not what’s important.

Defining active customers as someone who makes one transaction per month might define an active online banking customer or active online bill pay customer, but it doesn’t necessarily define an “active customer” which I’m not even sure a lot of banks define anyway.

If a bank customer makes zero transactions in a month, yet still pays a $5 monthly fee to have his or her account open, is that a bad or “inactive” customer? If it is, I’d be happy with a million “bad”customers.

However, Reich didn’t need to provide a point of comparison. The fact that Simple even defines an “active” customer (or as I would prefer to think of it, an “engaged” customer) is a smart management practice.

The typical mindset among marketers is “if we can reach a customer at the right time in the right channel with the right message, then we can sell to that customer.”

More enlightened marketers (if there are any) know that “engaged customers have an emotional bond or connection to this and will come to us when they have a product need.”

If more FIs actively (pun intended) defined and measured engagement, they would find new ways of segmenting customers, and identifying ways of deepening engagement and the relationship.


My take #2: Acquisition cost per customer is a horrible metric.

I don’t know who came up with the industry-accepted hallucination that the average cost to acquire a new customer is $150, but that person must roll on the floor laughing every time someone cites that statistic.

Even if, by some incredible suspension of rational belief, the total cost of acquisition marketing divided by the number of new customers acquired was $150, Reich’s claim that Simple’s acquisition costs are far lower than the average because Simple builds a product “that our customers actually want” would still be nonsense. For (at least) two reasons.

First, because Reich has no basis to claim that consumers don’t want what other banks are building or offering. If it’s true, then we really are a nation of morons.

Second, and more importantly, because the only thing that matters when it comes to measuring customers is customer profitability. Looking at cost to acquire without looking at revenue and profits generated is just plain stupid.

I would say “you do the math,” but sadly there are too many marketers who can’t.

So let’s say Bank Simple spends $50 to acquire a customer, generates $100 in annual profits per customer, and averages five years in customer tenure. If Simple doubles its 100k base of customers in the next year, it will have spent $5m to generate $50m in profits over 5 years. Not a bad ROI, eh?

But what if Not-So-Simple Bank spends $150 to acquire a customer, but generates $500 in annual profits and keeps that customer for seven years? If NSS Bank acquires 100k customers this year, it will have spent $15m to generate $350m in future profits.

BS gets 10x return on its marketing investment, NSSB gets 23x its investment.


My take #3: The Quartz reporter shouldn’t have published the article.

It’s pretty easy to understand why the reporter did what he did. He was handed a golden opportunity to get a scoop and publish something no one else could publish because no one else had access to that insider information.

But you know what, Mr. Reporter? It’s not that big of a scoop. It’s simply (pun intended) not that big of a deal. Simple’s customer and deposit growth may be “slower than expected,” but that doesn’t mean Simple is struggling.

Simple may have expected 50% month over month growth in customers and is only experiencing 25%. Which most banks I know of would be more than happy with.

What you should have done, Mr. Reporter, is tell Reich that you weren’t going to publish the information, and bank the goodwill you would have earned by doing so. You probably would’ve earned a scoop the next time Simple had some real news to share. Good luck getting an interview when that time comes, bud.


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