There are 6,000 banks in America, but four national banks dominate. As a society we tend not to discuss financial matters, nor do we have a framework for rational comparison among different bank brands. So, we rely on things like headline interest rates when we choose our bank, while ignoring the footnotes. Or branch proximity, forgetting that we rarely visit them. Bank competition has been reduced to marketing. Some joke that the past decade’s greatest banking innovation has been ever-decreasing font sizes.
This is partially because of a decision made in 1978, the year I was born. A case called Marquette v. First of Omaha removed the ability for states to impose their own interest rate ceilings on borrowing, allowing national banks with massive marketing muscle to capture market share by offering products that would have before been considered usurious by the states.
With the absence of regulation and true competition, banks merged and fees rose. Nowadays, banks make more money from fees than from actually banking. Because banks charge fees when customers make mistakes, they have little incentive to provide clear intuitive experiences and tools that help customers make good financial decisions. The less you know about your finances and the more financial products you own, the more likely you are to become a profitable customer for a bank.
In the 1950s, American banks were the first to adopt computers to automate accounting processes. American banks led the world in innovation. But the choices made then are still driving banks’ capabilities today. Customers see a confusing "available balance" because mainframes process transactions in batches, not in real time. And while the cost of data storage has declined a million-fold, banks still consider storage expensive. You can store and search every character in your free Gmail account, but banks don’t store all your transactions, and you can’t usefully search them.
Funny, considering almost 50% of Americans carry smartphones and can find answers to almost anything as they walk, except how they’ve been spending. People make money mistakes when they lack information or can’t get to it. Data, search, and design offer us major solutions to solve this. At Simple, we want to put power in people’s hands to make good choices, instantly. We’ll do this by surfacing the wealth of information that banks have about our financial lives, making it readily searchable. It’s baffling that understanding your finances still requires hours sweating over a spreadsheet or keeping Quicken up-to-date.
Another way to reshape this industry is to change the very nature of financial products. Today, banks give you a manual transmission interface for your money. It is up to you to move your income from your checking account into your savings account after paying down your credit card. Everyone does the same thing each month, because we all want the same thing: to minimize the interest we pay on money we borrow and maximize the interest we earn from savings. Even though everyone wants these things, banks don’t automate the process for you. Because they profit from user errors, it simply isn’t in their interest.
Banks also need emotional and cultural innovation. When the markets crashed, people turned to their local credit union in search of something more personal. But while these unions may provide improved costumer service, many have yet to invest in mobile apps or online banking options. By focusing sincere energy on humanized, personalized customer service and better technology, new finance models will flourish. People should worry less about money. The first step is making information available, and humanizing the way we consume it.
Deregulation was a boon for the big banks. In a short time span, they consolidated and captured market share while keeping enough barriers in place to limit innovative entrants. And while these banks can still outspend a growing breed of customer-friendly financial services, they can’t out-innovate them. Building better products and focusing on customers will result in true competition and a new class of services in an industry that’s been stagnant for decades. And, hopefully, these new products will shift social attitudes relating to personal finance. The opportunities to make this social shift are ripe for exploration, and it’s time for a change.