[nathanhammond]

$1.7 billion is a misleading number. The number that matters most in banking is your total deposit assets which they did not reveal in the blog post. The purchase was for two assets: the total deposits on hand (easy to calculate return on) and the technology. It's likely that at any bank of reasonable scale that it would take 2-3x the $117 million to build something comparable to what Simple already has. (I've worked at Wachovia, Wells Fargo, and Ally, and live in Charlotte so I know BofA's story too.)

This is an excellent purchase by BBVA, and a steal at that price. In short order they will move the assets over from the holding bank (that's the guaranteed money). At that acquisition price I suspect that Simple was struggling to return a profit since they were not actually a bank.

[mathattack]

To your last point was Simple's cost of funding just too high?

[nathanhammond]

Over-simplification: As a "not-bank" they can't engage in fractional reserve banking. This leveraging of money is what allows banks to truly generate profits. Acquire deposit assets at 1%, lend that same money out at 3-5%, profit on the spread. If a bank is offering a low rate that means that either their lending arm is not able to effectively use deposited capital or their overhead as percentage of that spread is too large. Higher rates signal that the bank is attempting to gain capital in order to supply their lending side.

Simple's funding likely only increased their runway while they were building a product that I'm guessing was net-negative. I don't feel like they could generate enough revenue to cover their burn rate using their holding bank strategy. If they could I suspect they would have continued down this path as a fearsome (future) competitor.

Once some bank builds the underlying technology in-house correctly they're going to be nigh untouchable.