For the consumer, if they can offer some of the analytic capabilities of Mint combined with the ability to make cash withdrawals from ATMs, deposit checks from your phone, and even get (some) interest it's an incredible product. It can roll most of your online financial needs into one company with a dedication to customer service. Sure, they may provide slightly worse interest rate. But how many people actually know their exact interest rate right now? Compare that with the number that have been adversely affected by overdraft fees and who would appreciate real customer service.
I wish them the best of luck! I hope they become the Zappo's of banking
Personally, my experience suggests that many people care very little about receiving monetarily the best deal (and the exceptions make sucky customers).
So yes, I think UX innovation could add a lot of value to the generic bank experience.
The way that BankSimple could differentiate themselves is by providing a very good API that I can use to get my account information, including transactions easily and securely as well as move money around to various other bank accounts. That is what I miss right now, I can set up recurring transfers but there is no way for me to programmatically say check if there is enough money or a direct deposit has been made correctly before transferring the money.
Maybe I'm alone in that, maybe I am not. Either way they have to offer something that ING Direct currently does not offer at a very competitive price (free) or it just won't be worth my time.
Credit Unions have restrictions on who can become a member. Also, I used to be a member of a Credit Union bank through work and while their fees might have been lower, their web ui wasn't any better than, say, Wells Fargo's.
I also have ING Direct account because they have much better savings rates then Wells Fargo. However, again, their web ui leaves a lot to be desired.
If not anything else, currently a bank-like service can differentiate itself simply via a fast web site with a top-notch design. From the UI previews I've seen so far, BankSimple is doing the web UI much better than the banks I'm familiar with.
banksimple negotiated high rates in exchange for banksimple doing all of the overhead/grunt work. the partner bank ensures the money and will lend it out, just like a normal bank. banksimple is basically building a slick customer service and user interface business on top of an existing bank, not building a new bank.
they make money on the difference in what they're paying in interest and what they're getting, and kickback on the card usage.
Interesting combination, hope it works, and that their business model has solutions to the obstacles you mentioned, especially the fee/cash flow stuff
BankSimple seems to be a no-branch bank like ING-Direct. They're presenting themselves as being better. How are they different? Well, they're pushing the idea of no-fees, better customer service, and better mobile banking. In order to achieve that, they'll have to be more efficient or accept a lower profit margin. Banks have healthy margins so there is some room there, but there are other industries with higher margins.
The second piece is that there are already not-for-profit banks. They're called Credit Unions. They exist to give their customers (who are their owners) the best deal they can. In order to be better than credit unions, they'll have to be significantly more efficient rather than simply relying on lower margins.
Part of what makes me skeptical is that they aren't creating a bank. They're partnering with currently chartered banks. This is probably because it's very difficult to create a bank and there's a lot of regulation to deal with. However, this somewhat limits what they can do to give me a better deal than a bank (since they're just reselling the product of another bank). Now, banks vary in how good of a deal they give you so part of their product might simply be getting you a good account under their brand. But part of this means that BankSimple won't be doing what banks normally do with deposits. Banks normally lend it out or invest it. BankSimple will be parking it in another account. So, if they aren't charging fees, how will they make their money? Maybe they've found an account that will give them 1% interest and they'll pass on 0.5% interest to me. However, why shouldn't I just bypass them? If they're doing things like refunding ATM fees, covering overdraft fees, etc. will the interest difference cover that?
I'm not saying that it can't be done. They stress no-fees and earning more interest. If they aren't lending the money out themselves, that will be hard to do - especially considering that they're claiming the best customer service, best software, etc. Where are they making their money? Not off fees and they aren't lending it out, but rather relying on other banks.
I'd really love to see their business plan since I assume they've addressed these things. Maybe wholesale banking exists and offers them a lot more. Maybe credit unions are woefully inefficient. I'm excited for their launch, but I'm not unhappy with my credit union.