Spiffy! (simple.com)

Here's something that'll resonate if you've tried to communicate with your bank lately: “Banks make money by keeping customers confused.” That's how Josh Reich, cofounder of Simple, explained his company to the New York Times. “There’s no incentives to make the experience better,” he added.

Today the Times writes about how Mr. Reich and his cofounder Shamir Karkal want to provide an alternative, in the form of a stripped down, perfectly clear alternative--one completely without sob-inducing hidden fees.

Of course, that's easier said than done.

It's taken the team a long time to get just this far: The Observer first took notice of the service when it was called BankSimple and based out of a Brooklyn basement; in late 2011, invites finally began trickling out a few dozen at a time. One Betabeat reporter only just got her invite--a year and two days after requesting one.

Simple is now off and running, having amassed a customer base of 20,000. The Times says company has processed more than $200 million in transactions. Not too shabby! Plus, a suite of data analysis features offer customers an unusual degree of assistance managing their money. (Imagine a dash of Mint.com in your Bank of America dashboard.)

But Messers. Reich and Karkal still have a very long way to go before they ascend to the ranks of the J.P. Morgans of the world:

“It is extremely difficult to get consumers to change and leave their banks,” said Jacob Jegher, an analyst at Celent, a research and consulting firm. “Plus, although they are not a bank, they still operate like a financial institution, and they will face challenges that big banks have decades of experience with.

The course of startup success never did run smooth.

Can't pay? Well, what about your friends?

Let’s take a trip with the Ghost of Christmas Future. The year is 2016, and George Bailey, a former banker, now a part-time consultant, is looking for a 30-year fixed-rate mortgage for a co-op in the super-hot neighborhood of Bedford Falls (BeFa). He has never missed a loan payment and has zero credit card debt. He submits his information to the online-only PotterBank.com, but halfway through the application process, the website asks for his Facebook login. Then his Twitter. Then LinkedIn. The cartoon loan officer avatar begins to frown as the algorithm discovers Mr. Bailey’s taxi-driving buddy Ernie was once turned down by PotterBank for a loan; then it starts browsing his daughter Zuzu’s photo album, “Saturday Nite!” And what was this tweet from a few years back: “FML, about to jump off a goddamn bridge”?

A new wave of startups is working on algorithms gathering data for banks from the web of associations on the internet known as “the social graph,” in which people are “nodes” connected to each other by “edges.” Banks are already using social media to befriend their customers, and increasingly, their customers’ friends. The specifics are still shaking out, but the gist is that eventually, social media will account for at least the tippy-top of the mountain of data banks keep on their customers.

“There is this concept of ‘birds of a feather flock together,’” said Ken Lin, CEO of the San Francisco-based credit scoring startup Credit Karma. “If you are a profitable customer for a bank, it suggests that a lot of your friends are going to be the same credit profile. So they’ll look through the social network and see if they can identify your friends online and then maybe they send more marketing to them. That definitely exists today.”

And in the last year or so, financial institutions have started exploring ways to use data from Facebook, Twitter and other networks to round out an individual borrower’s risk profile—although most entrepreneurs working on the problem say the technology is three to five years away from mainstream adoption.

“Credit score is a lagging indicator,” said Brett King, a tall, puffy Australian with white blond hair who is the founder of the online-only bank Movenbank and author of BANK 2.0: How Customer Behavior and Technology Will Change the Future of Financial Services. “At best, your credit score is about 60 days behind. What we’re trying to do is look for things that reflect the likelihood of a future default, rather than what’s happened in the past.”

Movenbank is an online bank in private alpha release that replaces plastic credit and debit cards with a mobile device such as an iPad or smartphone. Mr. King is a major proponent of the questionable young science of using social media to evaluate creditworthiness.

When it comes to online privacy, Mr. King subscribes to the Mark Zuckerberg school of thought: standards are evolving, and the world will be better for it. (As long as you're connecting and sharing, only good things can happen to you!) “Our view of what ‘private’ is, is changing,” Mr. King said. “We make friends with people we barely know!”

He predicts that banks will soon start asking customers to verify their social media profiles. Not everyone has a social media presence, of course, so submitting your Twitter handle will first be pitched as a way to provide customer support or account alerts, which will later open the door for “more complex products,” Mr. King said.

Employers have already started using social media to evaluate potential candidates, and in 2009 a woman in Quebec stopped receiving disability payments for major depression after Manulife decided, based on beach vacation photos on Facebook, that she seemed happy enough to work after all. “I’m sure that insurers now are looking at Facebook profiles and saying, ‘You’ve said you’re not a smoker? Well how come in three of these ten photos where you’re out with friends, you’re smoking?’” Mr. King said.

That means that tweet, “Just got fired, man. Spending my severance at the bar!” may have been ill-considered.

Mr. King is especially interested in identifying customers who can evangelize the service to a sizable crowd of cloud-friends. Movenbank requires users to connect their Facebook accounts upon registering, data from which will be baked into a proprietary “CRED” score, a number that determines which rates and products are available. The exact recipe is still being written, but eventually Movenbank will boost your CRED as you hook it up to your accounts on Twitter, LinkedIn and even eBay, which calculates a reputation score based on buyer feedback. It’s not the only metric, Mr. King said, but a strong Twitter presence could tip the scale in favor of a marginally risky borrower.

Much of this is driven by enterprising techies looking for the next big sector of the economy to disrupt with a social twist. Back in July, the 34-year-old internet pundit, angel investor and startup entrepreneur Kevin Rose, best known as the founder of Digg, sat down in front of his webcam in a t-shirt and baseball cap to talk to the internet about credit cards. “This might be potentially the dumbest, least-vetted idea I’ve ever put out there,” he said. “What if we could make credit cards a little more social?”

Mr. Rose was just spitballing, and his idea seemed innocuous enough. But there's a nightmare scenario: if banks learn how to use social media, they could gather information they aren’t allowed to ask for on a credit application—including race, marital status and receipt of public assistance—or worse, to redline segments of the social graph.

In other words: choose your online friends wisely, for they may one day determine your APR.

Lenddo, a Hong Kong-based microlending startup incubated in New York's FinTech Innovation Lab, calls itself “the first credit scoring service that uses your online social network to assess credit.” The first thing Lenddo asks for is a Facebook account; then it wants access to Gmail, Twitter, Yahoo, and Windows Live. The Observer was given a respectable score of 470. But when we tried to apply for a loan, we were told “you need at least 3 connections with scores above 400 in your Lenddo trusted network.” (We wouldn’t have been able to get a loan anyway: Lenddo is only available in the Philippines, although it recently hired an ex-Googler to head up the Americas.)

The company’s algorithm is proprietary and secret, said CEO Jeff Stewart, but the primary metric is what Lenddo knows about the people you’re friends with. “We think that in the age of the internet you should be able to establish your reputation and your identity through your social graph, through your on- and offline community, and use that to get access to financial products and information,” he said.

If Lenddo sees one of your best Facebook buddies took out a loan and paid it back, there’s a good chance you will too. “Our backgrounds are in machine learning and pattern recognition,” Mr. Stewart said. “It’s some serious math.

“There's no reason there shouldn't be thousands of engineers working to assess creditworthiness.”

In another nifty but nefarious innovation, Lenddo reserves the right to broadcast your loan status if you fall into default. As the site warns: “Failure to repay will negatively impact your Lenddo score, as well as the score of your Lenddo friends. Lenddo MAINTAINS THE RIGHT TO NOTIFY YOUR FRIENDS, FAMILY AND COMMUNITY if the borrower fails to repay, however, this is only done after several notifications to the borrower and an attempt to work out a payment plan.”

“I think Mark Zuckerberg said it best,” Mr. Stewart said. “Every industry will be in fact impacted by social.”

Banks have been curious about using social media to gauge risk for at least a year, said Matt Thomson, VP of platform at Klout, which calculates “influence” based on a user’s social media activity. Determining creditworthiness is not a core product of Klout’s, he said, but banks have approached the startup to ask about it. He wouldn’t name names. “It’s really like the who’s who of banking,” he said.

(Mr. Stewart of Lenddo also said his startup is approached “regularly” by major banks curious about the algorithm.)

Klout, arguably the leader in developing a metric for social media power users, has taken a beating from bloggers for being spammy and potentially insecure. The New York Times wrote about shocked parents who discovered Klout had autogenerated skeleton profiles for their children, based on what it had gathered from their connections to others; the science fiction writer Charles Stross called the service “the internet equivalent of herpes.” R. Ethan Smith, who blogs as The Startupist, recently wrote a critique of Movenbank’s projected partnership with Klout. “Klout claims that I am influential about New Jersey, coffee, and iPads,” he wrote, noting that he has no real expertise in any of the three and doesn’t even own an iPad. “Now, let’s assume that King is completely serious about using online social profile data to determine a Movenbank user’s influences, which will essentially determine their ability access a line of credit... To stake tangible dollars on what seems to be a relatively easily manipulable algorithm is not something I would characterize as ‘good business sense.’”

Media theorist Douglas Rushkoff dismissed the idea that social media credit scoring is a serious erosion of privacy, mostly because there’s nothing left to hide. “We’re already in the nightmare scenario,” he wrote in an email. “They already know everything about you—more than most of us realize. If anything, the addition of social networking information to this data mining will help us come to some understanding of how much more these companies know about us than we know about ourselves.”

The precise formula for FICO, the most widely used credit score, is secret and proprietary to the Fair Isaac Corporation, a publicly traded company. Experian and TransUnion, two of the three national credit bureaus, did not respond to requests for comment on this story; Equifax, the third, did respond. “Our corporate development professionals are very aware of the opportunities to enhance our proprietary data and partner with companies who add value to the accuracy of our reporting, which helps our customers make better decisions prior to lending,” a company rep said in an email, adding that Equifax can’t comment on future strategies because it’s a public company.

This new use for social media data could turn out to be empowering, Mr. Rushkoff pointed out, if it leads to people lending to one another. A reputation score based on the social graph could lower the barrier to entry for peer-to-peer lending startups. “Instead of everyone outsourcing their savings, investments, and borrowing to truly evil institutions who use what information they about us simply as an excuse to drain more money from us,” Mr. Rushkoff said, “we would invest in one another.”

Snow is falling lightly outside as Mr. Bailey logs off of PotterBank.com. Suddenly, a bell rings. It’s his iPhone: a text message from Lending Club, a peer-to-peer lending startup based in San Francisco. His friends saw his Tumblr post with photos of the coveted apartment, and forwarded it to friends of friends. Collectively, they’ve pledged to invest over and above the needed deposit. He looks up, smiles; looks back at his phone, and taps out a tweet: “No man is a failure who has friends!”

CORRECTION: The original post incorrectly said Lenddo is based in New York. The company is officially headquartered in Hong Kong.

(simple.com)

Betabeat just received a note from the personal finance startup formerly known as BankSimple. The first signup was in February 2010, the company says, and it's first come, first serve. That means people who signed up recently will have to wait until summer to get their invites. "We have begun sending out invites, currently a few dozen at a time, and then we will escalate from there," Simple says. "If that seems a bit slow, it is deliberate. To get ready for a wider release, we are beginning with the core features of spending and depositing, and looking to our first customers for feedback before releasing the full product."

Simple started up in New York but recently moved to Portland. The company's prelaunch troubles remind us of what held up Jack Dorsey's Square, the mobile payments processing dongle, production of which was delayed due to concerns about security. After the product was release, Square faced accusations over the security of its system from competitor VeriFone, which said the device could easily be used to steal credit card information.

Simple has decided it's better to keep customers waiting and err on the side of caution rather than rush the product out the door--even though the wait time is now approaching two years.

"You’ve been on the list a long time, and we’re thankful that you have stuck with us," Simple says. "Those of you who signed up most recently can expect to receive your invite by summer. Those of you who signed up earlier will receive their invite sooner. We’ve been using the full product internally for a few months, but Simple presents key departures from how banking typically works and we want to make sure that you all love it as much as we do."

The company is careful not to apologize, merely thanking users for their support.

Beachy!

After much anticipation (at least around the Betabeat offices!), BankSimple is finally accepting its first users. And it couldn't come at a more opportune time for the innovative financial startup, which works with chartered banks to offer a better, more transparent experience for customers in managing their money.

In a blog post today, CEO Joshua Reich said the service is still invite-only, but pointed  out that its the first time non-employees get to test drive the system.

On the heels of Occupy Wall Street's criticism of big banks and an email from MoveOn.org urging folks to "Close Your Bank Account," consumers have been fleeing traditional banks for credit unions. ABC News reports that 650,000 people switched to credit unions since Bank of America announced its (since-cancelled) plans to institute a $5 debit card purchase fee. After "Bank Transfer Day" on Nov. 5, 54 percent of credit unions reported an increase in share growth.

It's easy to see consumers looking for an alternative turning to BankSimple instead, although it will be under a different name.

As part of the announcement, Mr. Reich said BankSimple is dropping the "Bank" part and will just be called Simple. Hrmmm, that's either a branding coup or overkill (Think of the trademarks, people!). But it's an unambiguous win for in terms of domain names: the startup owns Simple.com.

Although originally launched in a Brooklyn basement, the company, which has $13.1 million in financing from VC firms including locals like IA Ventures, Lerer Ventures, and Thrive Capital, is now based in Portland. *Sniffles*

Mr. Reich explained what consumers can expect from Simple:

"Using Simple, you can make purchases with a Simple Visa® card, pay bills, earn interest, set up and track savings goals, and much more. Simple replaces your bank, but we are not a bank. You use our mobile and web apps and speak with our customer relations team when you have questions. We partner with chartered banks that hold your deposits in FDIC-insured products. They take care of money, we take care of customers, and together we’re delivering a new type of financial experience that’s easier, faster, and friendlier."

Fast Company got an early look at its iPhone app, which looks less than simple. For a little more detail, take the video tour of the desktop experience. It's from back in September, however, so you'll have to mentally redact the Bank part of the logo:

BankSimple Demo from Simple on Vimeo.

Disclosure.

Mr. King.

Betabeat has a new internet bank to dote on now that BankSimple has abandoned us for the City of Roses. Movenbank is a New York-based personal banking service that uses near field communication--the same technology as Google Wallet--to remove the cards and the wallet from banking transactions and replace them with your phone. Founder Brett King, an Aussie based in New York and London, rode the success of his book, Bank 2.0, and his experience with his boutique consultancy firm User Strategy, to start up a bank with "No paper. No plastic. No hidden fees." The bank is launching its first product, a Mint-esque personal finance profile based on social data, on October 1 and plans to roll out the financial services over the summer.

Alpha users can sign up for Movenbank with Facebook and turn over the keys to their Twitter accounts, Klout scores and other sites where users maintain a rating of some sort; customers will not connect their bank accounts until later in the company's development. Eventually, Movenbank will look at factors such as social connections in order to determine who gets a credit line.

"Think of it as a product like foursquare or Klout initially, but around your financial life," Mr. King said. "Wherein a typical bank might say--you come to them, and you say you want a credit card--and you're a customer with a score of say 580, the bank's going to say 'no, you're marginal, you're too high-risk.' But we might give them a card based on other things. Say they have 10,000 friends on Facebook and Twitter. We'll say okay, they have high influence--we should probably pay this guy to get access to his friends list!"

Movenbank raised "quite a big funding round" from an Asia-based investor about a year ago, Mr. King said, and has eight full-time employees in its Midtown office as well as part-time and contract workers in the U.K. and Asia. They decided to go with NFC because "clearly that's the way things are going to go," Mr. King said. Bank of America is installing 18 NFC-enabled ATMs in New York and Citibank is also implementing the technology "on a fairly large scale," he said.

Betabeat noticed that Movenbank's blog is rife with mentions of its more famous and now West Coast-based cousin, Banksimple--a surprise since startups often like to pretend their competitors don't exist. "My pals at BankSimple soft launched their debit cards internally for their staff this week, which is big news because it signifies the acceleration of the big shift in the BANK 2.0 landscape," Mr. King wrote on Sept. 20.

The BankSimple launch is significant for a number of reasons. First of all, when was the last time you heard of a new bank having 50,000 customers signed up or registered before the bank launched?? Secondly, the fact that BankSimple doesn’t have a banking license of their own, is no hindrance in offering better banking service today. Lastly, if you are going to change an industry, be prepared for some resistance.

"We're big fans of what they're doing," Mr. King said. "From our perspective the more reform that takes place in this space the better. We're creating a new mode of banking so it's actually in our interest to work together in that rather than be strong competitors ... if Banksimple is successful that adds credibility."

Movenbank is still negotiating with partner banks who will power the financial backend, the same way Banksimple works. The company has a few thousand subscribers signed up, Mr. King said.

Movenbank and Banksimple might be considered allies in a fight to disrupt the personal banking industry. Both startups have run into the same problems with an entrenched and unpopular system--both originally wanted to charter their own banks, but found the process too time-consuming, complex and uncertain. Movenbank, which just started building a product in the beginning of this year, can look to Banksimple for some of the challenges it might face ahead: the (now) Portland-based company's launch dragged on as it struggled with the pressures of its ambitious task, losing its lead engineer in May, which was around the time it was supposed to launch.

BankSimple Demo from BankSimple on Vimeo.

The top comment merits a copy and paste: "I dont (ever) watch videos on the internet. I read quick, and I much prefer to do so. I suppose I'll have to wait until you actually write about it to find out what you do. Its a shame, as I suspect its something that I would really like."

BankSimple, the Brooklyn-based personal finance start-up that was supposed to have launched already, surprised us with the announcement today that it's moving its headquarters to Portland, OR, a city which this reporter knows a smidgeon about, having lived and worked as a business reporter there. In addition to some mobile app development shops, this makes BankSimple, funded to the tune of $13 million and boasting early Twitter employee Alex Payne as a co-founder, easily one of the most high-profile start-ups based in Rip City.

From the start-up's blog post today:

BankSimple is moving to Portland, Oregon.

Last month, we gathered our New York, San Francisco and Portland teams for a week-long all-hands meeting in Portland. While we’ve been working effectively as a group spread across the country, having everyone together in one place was incredible.

We’re excited to announce that we will be consolidating our teams to one location in Portland’s beautiful Pearl district. The rationale for our move is straightforward. As our company grows, it’s important that we have everyone in the same place. Being centrally located allows us to collaborate more closely and create a strong and consistent culture.

Okay, you want to consolidate teams. But why Portland? "It seems like a place where people are friendly, but they're still very passionate about what they do," Mr. Payne told the Oregonian.

Portland is also a highly affordable fun place where it'd be easy to attract employees. Despite the presence of internet-savvy ad agency W+K, which was responsible for the Digg/Old Spice ad campaign and the start-up incubator that agency launched last summer, it's definitely a second-tier city as far as tech action goes. BankSimple will be a big fish in a small pond. Whether that'll be a long-term benefit for the start-up is hard to say.

BankSimple from the outside appears to have had some rough patches recently with its lead engineer abruptly leaving and its delayed launch, but recent announcements suggest it's closing in on a launch date.

UPDATE: A tipster writes in to remind us of Mr. Payne's history with Portland, the city that works, from where he convinced Twitter to let him work remotely because he was just not that into San Francisco. Guess this isn't such a shocker. Perhaps he felt BankSimple could do a better job disrupting the banking sector long-range. Or maybe he just missed the food carts?

In the interim between the missed deadline and the present, BankSimple hired a two-person customer service staff--indicating the anticipation of customers!--and had a falling out with its lead engineer--indicating some stress within the ambitious company.

But some details are emerging, suggesting that BankSimple may have hammered out the kinks. "The service features fee-free access to over 43,000 ATMs, free online bill payment, fast and painless money transfers, and responsive customer service via the phone and web," the company says. Present tense!

Fun fact: Mr. Shapiro turned 34 last week.

Craig Shapiro, former president of GOOD magazine and current CEO of the socially-conscious Collaborative Fund, has a place to leave his shoes in New York now. Collaborative is invested in multiple start-ups in the city, including Kickstarter, BankSimple, and SkillShare, and its New York connection is getting stronger--SkillShare founder Mike Karnjanaprakorn recently announced he'd been brought on as a venture adviser. Collaborative is on the verge of hiring its second New York employee, a junior scout sort of position, which Mr. Shapiro says he'll announce in about two weeks.

There's some history there, too--Mr. Shapiro learned much of what he knows about start-up investing from Josh Kushner of Thrive Capital. He also invested in New York-based Give Real (alongside early Facebook investor Eduardo Saverin) which attempted peer-to-peer ecommerce on social platforms; it flopped, much to Mr. Shapiro's dismay.

"I really loved that idea," he said wistfully over tea at an open-air cafe on Prince St., where Betabeat met with him yesterday morning, where he riffed, at our request, on design, investing and changing the world.

Collaborative's investment philosophy is pretty simple, he said. The fund--which launched at the end of 2010 with $6 million, but has raised an undisclosed amount more--focuses on companies that encourage collaborative consumption in a way that aligns social benefit with profitability. So far, that hasn't been easy.

“I do find it challenging to find start-ups that are working on world-changing ideas," he said. "And a world-changing idea doesn’t need to be solving global poverty. It can be something very simple. But I do think that first-world problems, like not being able to find a parking space--it actually may be a good business opportunity, but it's not something that I’m really interested in.”

He's especially interested in food, education and transportation, he told Betabeat.

Which big-name start-ups would you invest in if you could? we asked. Would you invest in Tumblr? (He had mentioned Tumblr as an example of a love-mark sort of brand.)

"I'd invest in Tumblr, because of the ease of use and simplicity of design. Instapaper. I think what Marco has done is so cool and I’ve met him and he seems like just a great entrepreneur. He understands how to build products and I think it's one of the more usable things that’s been built in the past couple years. Drudge Report! He’s so disruptive to the news space and what he’s been able to pull off, I’m like, holy cow. I would love an opportunity to invest in that.

"I would love an opportunity to invest in DonorsChoose, but it’s a nonprofit so there isn’t a clear path as to how I’d make money on that investment," he added.

Wait, back up, we said. You'd invest in the Drudge Report? Is it because you want to redesign it?

"The design in some ways is charming to me. It brings me back to like when I first started consuming web content, like animated GIFs and big fonts and a hodgepodge of somebody who had just learned html. I’d be afraid if we redesigned it, that it would lose some of that charm. I don’t know. It's so functional that it's hard to argue with."

Same with Craigslist, he added.

But as far as companies he is invested in, he's very bullish on Brooklyn-based BankSimple, which is attempting to disrupt consumer banking with a single bank card that works in any ATM and an online-only interface.

"In the four years that I’ve been investing, I've never seen a product with more anticipation than BankSimple," he said. "There’s so much pent-up interest and curiosity, it's crazy. I field more questions about what they’re up to than virtually any other company that I’ve ever even worked for or invested in...

“I love the idea of using transparency as a weapon to compete with. They're just like, 'we’re going to make this dead simple from a user experience perspective, and our fees are going to be totally transparent. We’re not going to nickel and dime, we’re not going to have hidden fees, we're going to out-compete Citibank and Chase by creating a more consumer friendly experience,'" he said.

But it's tough, being disruptive. (Maybe this is why people make apps to track open parking spaces and unused frequent flier miles?) BankSimple has had challenges coming to market, he said, which is frustrating. The launch, which was supposed to happen in the spring, is delayed, and the start-up's lead engineer recently quit.

There's another start-up that's struggling to get off the ground; or rather, out of Mr. Shapiro's head. "It's a secret," he said. "But I'll tell you. It's on the record but it's totally secret."

We had the feeling this was one idea Mr. Shapiro would be happy to have stolen by someone with the time to build it. The idea: A universal reputation score that factors in scores from services like Kiva, Airbnb and eBay--like a Klout score, but for trustworthiness. And in Mr. Shapiro's imagining, this score would include good deeds as well. Recycling, for example.

We were just talking about this with another VC, Betabeat exclaimed.

"Really? That's great!" he said. "You and I should work on it!"

Disclosure.