Online Bank Goes Fee-Less

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There’s a new player rolling on to the banking landscape, and it doesn’t like the hidden fees that big banks have come to love. The bank’s name is BankSimple and its goal is to change the face of the industry.

But can it survive without charging onerous bank fees?

BankSimple was founded by entrepreneur Josh Reich and by Alex Payne, a key player in the creation of Twitter (he developed the social networking giant’s technology platform).

Looking to cash in on the same user experience success captured by Web sites like Mint and Obopay, BankSimple is an online bank that relies on creative technology ways to improve the customer service experience.

For example, BankSimple plans to:

  • Charge no fees on its nationwide network of ATMs.
  • Reimburse fees from out-of-network ATMs.
  • Accept bank deposits from photo images via a smart phone app (or as the bank says on its Web site: “Take a photo of the check with your smart phone and send it to us with our app. Pretty simple, right?”
  • Will offer traditionally fee-heavy services like online bill pay and cash transfers with no fees.
  • The bank will charge no overdraft fees.
  • All deposits will be FDIC insured.

The founders say they can get away with charging no fees because of the costs saved by not having physical branches. But a lot of online banks say that, and they still charge fees. A visit to the BankSimple Web site reveals a bit more from the founders on how they can turn a profit without charging bank fees:

“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.”

With Payne on board, consumers may expect a heavy dose of the streaming and social interaction technologies that define Web sites like Blippy and Twitter. If nothing else, Payne is putting his money where his mouth is — he freely gives out his e-mail address (alex@banksimple.net) and even uses it to reach out to potential summer interns and future programmers.

BankSimple hasn’t set a launch date yet, but the founders say they will definitely launch in 2010. While its survival is by no means certain, BankSimple will likely accomplish one thing — its no fee, “don’t suck” mantra will get the attention of big banks.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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