There’s a new bank in town. It’s called banksimple, and it might just turn a few of the more “traditional” banks on their heads. Why? Transparency. I know, you think I’m joking. But, I’m not. Let’s start with no overdraft fees. None.
No overdraft fees. If you have no money immediately available, we will draw down your savings. If you don’t have any savings, we may extend you credit. It doesn’t cost us very much to provide this, so we don’t charge you for it.
What about other fees? According to their FAQ, they plan on passing on their cost only. So, if an international wire costs them $15, it’ll cost you $15. Simple. Of course, if you’re like me, you’re wondering how they are planning on making money. They answered that one as well.
We make money from two sources: interchange and interest margin. Interest margin is the revenue earned from lending, less what they pay on deposits. For example a bank may charge a customer 12% to borrow money, but pay 5% interest on a savings account. The difference, less any defaults on the loan, is revenue to the bank. Interchange is a small revenue source that card issuing banks earn whenever that card is used at a store. Typically banks earn less than 1% for each time the card is used to make a purchase. These are both great revenue streams, but banks got greedy and started charging additional fees to bolster their revenue. Our operation is low cost, so we don’t need to rely on extraneous fee revenue.
I have to admit that I’m a bit skeptical. It’s just not normal operation procedure. Hell, even Credit Unions, who are supposedly owned by their members, charge overdraft fees and other fees. The problem is that what is now normal M.O., hasn’t always been. There was a time when banks actually operated the way that banksimple says they are going to. Honestly. Making their money from interest margins.
If it works the way they claim it will, I’m a bit excited. The problem at the moment, is that they aren’t open for business. I couldn’t find an exact date; all they say is “later this year”. (I’ve got an email in to them asking for clarification) All you can do right now is sign up for an invite when they do open their doors. Might be worth a check when they do open up. I’m all for transparency in banking.
Anyone else got any more information on banksimple?
UPDATE: You can read a couple of interviews that the guys behind banksimple did with the New York Observer at the New York Observer site.