It’s been five years, and Josh Reich still won’t call himself a banker. Back then, the CEO of Simple—the startup that’s been called "banking 2.0" and praised for its design and customer-focused approach to personal finance—could have easily been called foolish or naive for his decision to jump into business with cofounder Shamir Karkal. He didn’t really know a thing about banking except that it annoyed the hell out of him.
Five years later, Simple has become successful enough to attract the attention of the sort of institution it was looking to replace. Last Thursday, the company announced that it was being purchased by Spanish bank BBVA. In light of the news, I spoke to Reich about the benefits of entering a field you know nothing about, Simple’s philosophy of "naive optimism," and how the company culture will fare under its acquisition.
"I think if I knew more about banking I probably wouldn't have done it. Because, who the hell does this?" Reich says, commenting on the massive amounts of skepticism he met when he started Simple in 2009. "I think everyone who I told throughout the first six months of this was like, ‘that's kind of a stupid idea.’ The assumption being that it's just impossible for someone to do it by themselves. Luckily, I had a business partner who knew something about banking but he was by no means a banker either."
Reich viewed their inexperience in the field as an asset, something that drove Karkal and himself to plow ahead despite the fact that they weren’t bankers.
"The fact that we didn't know what we were doing wasn't a problem because we each had to hold up our own end of the bargain to each other." Echoing the beginnings of many startups, Reich and Karkal had quit their jobs and were committed to a venture they had no business being in.
"It probably gave us some arrogance," Reich says of the way Simple’s contrarian approach to the way modern banks interact with customers and technology. "Arrogance and confidence is a really fine line. It was so easy to talk to bankers who were so blinded to what tech actually meant to people."
He cites Citigroup as an example of tone-deaf bankers who spend enormous amounts of money on upgrades that could prove to be irrelevant—choosing old, proven tech that completely ignores the ways consumers do banking now.
"So here you have a bank that's a massive, massive institution, the fourth or fifth largest bank in America right now, and they're investing billions of dollars in technology but they're not taking a modern approach… they think that the rules of technology don't apply to them because they're so massive, and they have their own arrogance."
To Reich and his team, it felt obvious that their modern approach would succeed, and afforded them the leverage to build a business around the core philosophies that distinguish Simple from traditional banking options. As a relative stranger to the financial world, the company found itself not balking at trying new things, less set in its ways, and more willing to convince regulators to allow them to launch new features.
"Innovation in banking is typically a dirty word," Reich says. "Innovation in banking is typically finding a new way to screw customers over. I think we've had a lot of success making a very clear statement to the public that we never want to profit from customer confusion."
Now that Simple has been around a while, Reich believes that it’s becoming clear to other banks that Simple isn’t taking this approach "to be hippies," but because it’s a better way to do business. What’s more, being green has saved them an immense amount of money—a hallmark of Simple is that there are no physical branches, which Reich calls "really expensive marketing channels."
But now, Simple is being acquired by a bank, which has proved worrisome to its supporters, and in direct opposition to the company’s ethos. Reich however, believes that the purchase by Spanish bank BBVA was the one financing option that would most enable them to maintain the values and philosophy the company had built up as a banking newcomer. The deal will allow Simple to continue as an independent entity, with Reich keeping his team and his title, but now flush with cash and opportunities to expand internationally.
Reich speaks highly of his new employers, citing an op-ed by BBVA CEO Francisco González in which the executive, like Reich, argues that banks need to act more like tech companies in order to compete.
So while some remain skeptical, Reich believes that the purchase won’t change a thing. "We have faith that we believe in the same things…they didn't pay for us for our customers, they didn't pay for us for our technology, they paid for us for the culture that we have, a culture of continuous innovation."
To hear Reich tell it, that culture wouldn’t be there without the thread of naive optimism running through Simple’s five-year history. It’s a thread, he says, that’s vital to both him and anyone else starting a business today.
"I think anyone who's working on something, anyone who's gone out on a limb starting a business has to have naivete, has to have optimism, because the odds are just so stacked up against any new business… And whether you succeed or fail depends on a million and one things but you can't succeed at all, you can't even be there, if you're not optimistic."