Most Americans hate their banks. We get hit regularly with nasty, unexpected fees; it’s almost impossible to find a sympathetic human to answer questions; and banking products are so user-unfriendly that entire industries have grown up just to make it easier for people to send money to each other. (Hello, Venmo.) Simple, an online bank that launched in 2011, was going to fix all that, starting from the simple premise that “by not sucking, we will win.”

Simple was early. Probably too early. It was founded in 2009 (it took two years to actually launch), in the midst of a Great Recession that saw more than 400 banks fail. That was not a great time, it turns out, to ask federal authorities for a brand-new bank charter—not unless you were Morgan Stanley or Goldman Sachs, who literally became banks in the course of a couple of hours as part of Treasury Secretary Tim Geithner’s attempts to stabilize the American financial system. As Simple’s co-founder and CEO Josh Reich tells me, “I did not quite have access to the overnight ‘you are now a bank’ incantation.”

Instead of launching Simple as an independent bank, then, Reich ended up working with a partner bank, Bancorp, and layering his mobile services and debit card on top of its infrastructure. That limited what he could do: Simple’s bank accounts didn’t have the intended credit line or overdraft facility at launch, and indeed they still don’t.

Eventually, Simple ended up becoming part of the Spanish giant BBVA, and now Reich, CEO from Day 1, has become the third and final co-founder to leave. He’s exiting at a time of change in the industry: Now that the financial crisis is over, the government has a slightly friendlier stance toward people trying to set up new banks for customers who spend much more time on their phones than they do in bank branches. Varo Money is seeking a bank charter; online bank Chime is also growing fast. Even Goldman Sachs is competing aggressively with its online-only Marcus bank.

As Reich, whom I’ve known for more than a decade, heads for the exit, I wanted to ask him to what extent things have gone, or not gone, according to plan. What’s the thing he most regrets not doing at Simple? Has the era of the online bank finally arrived? Something something blockchain? I spoke to Reich on Wednesday; this interview has been condensed and edited for clarity.

Felix Salmon: Let’s start with this whole idea of starting a bank. It used to be that people would start banks quite a lot, and then in the most recent decade, that changed.

Josh Reich: When we were working on starting Simple in 2009, the plan was to go and get a banking charter. History up until roughly 2008 suggested that dozens, or a couple of hundred institutions form each year. And, um, that was not happening circa 2009. We’re starting to see things pick up again a little bit. Our friends over at Varo Money, they’re going through the process now. They’ve been pretty public about that. Hopefully that will happen. But we ended up going down a different path, which was the partnership path and then the acquisition path.

Which was kind of out of necessity. Would it have been a lot easier, in terms of being able to do your own thing, if you had been your own thing?

I want to be wary of falling into the grass-is-greener trap. But holding everything else equal, I think it probably would have been an easier path if we were able to get a charter. If on Day 1 we were our own bank, it would’ve been easier from a technology perspective, which is where my mind first goes. Because my background is as a technologist and I still think of myself as a technologist. I think it might also have been easier from a regulatory perspective as well. Not that regulation has been a challenge for us, but we’ve had to explain through our partner or through our parent bank, whereas I think having a direct relationship would have eased those conversations.

“This is not an app where you can say, whoops, I’m sorry. We did that once at Simple and we learned our lessons.” — Josh Reich

I think it’s really challenging to operate under the partner model. For all the reasons I just talked about from a technology and regulation perspective, but also just from a margin perspective. When you have an intermediary, they want to make some money, and particularly if you’re a new technology-driven financial services company and the partner who is underpinning your regulatory existence is an old-school banking company, they’re probably built in a way that sort of requires them to be more expensive. So you don’t get the full benefits of being a full-stack modern tech company when you have to give off a chunk of your revenue as margin to an old-school mainframe-based, literally paper-and-pen based process.

You launched in 2011. We’re seven years in now from your first little white debit card. In those seven years, has this whole market of banking millennials got to where you thought it would be by now?

Yes and no. Simple has got a lot of mindshare and customers. People on our tails are doing Simple-like things. Chime and a bunch of others are approaching it in different ways, whether it’s thin vertical apps like Even or Qapital,* or full-stack -banking replacements like Chime or Varo. There’s a lot more competition out there, but the reality is that most millennials, like most Americans, bank at the top four banks.

So there hasn’t been as much market penetration over the seven years as I would have assumed. But the reality is this is a really slow business to build. There are a lot of constraints to growth and so it will take longer, but I think it is going to change.

What are the constraints to growth?

Let’s say we went down the route of getting a bank charter. This was one of the eye-opening conversations that we had in 2009 and 2010 as we were exploring that route. From a regulatory perspective, whether you’re starting a new bank or whether you buy a small bank with like a $20 million balance sheet, in order to go and do digital banking. The regulators want to see money. They want reserve capital for operations. But when you have a change of purpose, they also have reserve capital requirements for the next five years, upfront. And so if you’re planning on growing super fast, if you’ve gone out and raised venture capital funds, which are not cheap, suddenly you’re putting them in reserve capital at a bank. Which venture capitalists really don’t like the return profile on. From a financing perspective, that’s why it’s hard to grow this quickly.

Then from a technology perspective, this is not an app where you can say, whoops, I’m sorry. We did that once at Simple and we learned our lessons. We had that processor outage in 2013 where I think it was 8 percent of our customers were impacted. They really hurt, and that’s a really bad position to be in. It’s not like your photo sharing app was unavailable at 2 a.m. on a Sunday. if your bank account is not available at 2 a.m. on a Sunday that hurts people. And so you have to take a more cautious approach. That just is slower than going in and throwing stuff against the wall and seeing what works.

Then there’s the question of customer acquisition. Moving banks is a royal pain in the ass for customers. Is that something where anyone’s been able to make any progress, in terms of making that whole process slightly less painful?

One thing that that has been a huge improvement in this space has been competition to [accounts aggregator] Yodlee. One of the hard things about moving banks is not necessarily all the things you know you have to do. I give my new card number to Amazon and I have to change my payroll to go into this new account number. Those are things you will think of. It’s all the stuff you forget. And access to data from your bank account can make it easier. So when you’re moving from Wells Fargo to Simple and you sync up your Wells Fargo account and we say hey, do you remember that every quarter you’d pay someone this amount, we’ve seen it in your last two years of transactions, and we’ll stop you from overdrafting or getting a late payment fee or whatever. That access to data is really critical, and when Simple launched, really the only player was Yodlee. It’s nice having competition in terms of Plaid.

On the flip side is Section 1033 of Dodd-Frank, which didn’t really get a lot of attention, but which held a lot of promise for making the world a lot easier. It was basically a single paragraph, which said that the bureau will write rules to the effect that customers own their data and there needs to be machine-readable portability of banking data. And no one really noticed it. A group of us were lobbying the CFPB and saying go write some rules on this. This would be really meaningful. If you look at PSD2 in Europe, it’s a payment services directive that basically directs banks to let customers move data easily from one bank to another. It mandates the APIs and authentication controls and a lot of things that are hacked together in America. That would be a huge enabler of competition and make it easier to transfer from one account to another. That may be in the future, depending on where the bureau for consumer financial protection ends up.

Banking and finance and stuff is obviously an incredibly highly regulated industry. That has always been one of the comparative advantages of the big banks: They have 8,000 compliance people who can cope with that, and small startups just don’t. So, to push back a bit, maybe the first-order effect is that if the CFPB becomes incredibly otiose and invisible, that’s arguably good for innovation in this space.

I’m closely aligned with some of the people who were originally around the CFPB. I believe in their mission and their intent. The fundamental problem that Simple was trying to solve, and continues trying to solve, is the incentive alignment problem. You have this principal-agent problem between individuals and their banks and in the face of no obvious easy solution to principal-agent problems there’s a role for regulators. And so I think regulation is good and necessary and required for this space. And I don’t think by default it has to be anti-innovative. In fact, if there’s one regret that I have from my time at Simple, it’s that we didn’t do more when we were smaller. I slightly disagree with your statement that large banks have a comparative advantage just by the size of their compliance and regulatory affairs staff. They do compared to the midsize banks, so they’re able to sort of roll with the punches there. But you can be really small and really fast, just for the fact that you have very few customers.

We chose pretty early on to ask for permission, not forgiveness when it comes to this space. That’s not the approach that everyone took. PayPal didn’t take that approach. They were so small that no one cared about them. And then they were too big to have to comply. And new regulations were written and enacted to, to let them be what they were. So one of the things that I would love to have done nine years ago when starting this was maybe launching in 2012 versus 2011 and having more of the full set of what we wanted to build done. I think it would have been easier to do when we had zero customers versus when you have hundreds of thousands of customers and have regular audits and exams from regulators.

What were the big things that you didn’t launch with that it would’ve been much easier to build in advance, rather than in midair?

The first slide of our very first investor presentation was “banks make money by keeping customers confused.” When you have more accounts that you have to manage as an individual, there’s more opportunities to make mistakes and to act suboptimally. People are really bad at making complex financial decisions, and those choices, when you make them incorrectly, not only penalize in terms of getting suboptimal returns for the customers, but there’s a lot of fees that are levied as well. Which is a huge profit center for banks.

So the original idea, again, from the very first slide presentation, was we’ll have a range of financial products that we’ll abstract from you. We’ll tell you what’s safe to spend. You tell us your goals, we’ll take care of whether that money needs to be in your checking account or in a savings account or in a CD or in the market, and whether you should be paying off your credit card or whether that should be coming out of a personal loan, and if you have a house let’s roll that loan into an equity line of credit. It’s a bunch of decision-making that’s complex from a human’s perspective, that we could have automated. We’re still working on it, but it’s much more difficult to do at our scale than it was to do as a two-person company.

Does it make sense to do that from within the bank? There’s a bunch of other people trying to solve those problems where they will plug into your various institutions’ APIs and tell you what to do.

One of the big complaints you get about personal finance management software is that it will tell you sort of what to do. But then you actually have to go out and do it. That’s a huge cognitive load on people. It’s not that you need to be rebalancing your stock portfolio multiple times a year, but when it comes to your checking account and your credit card, you need to be making decisions on a day by day basis. And telling you what to do is different from doing it yourself. It would be great to plug into APIs and just move money. But those APIs don’t exist. Even Section 1033 didn’t go that far. That just gave you read-only access. Not read/write permission. No one’s giving that up. And the advantage of doing this from within a bank is that not only can we tell you what to do, but we can do it for you, because we have those accounts. And where there are other accounts that are better, or financial products that are better, we can do partnerships with those companies to bring those into the fold and get read/write permission.

When you launched, I was pretty sure that come 2018, the one thing you would obviously have would be loans. That’s the low hanging fruit. Why hasn’t that low hanging fruit really been plucked? Where can I just like get a $2,000 line of credit or something.

The hesitance for us getting into it was that we saw Prosper and Lending Club doing that, and we figured that space is sort of covered. But given that we do want to have everything in house, it’s fair to say that we are definitely looking at that right now.

There does seem to have been a lot less innovation in small loans. Not for big things, like I need to refinance $20,000 of credit card debt or $80,000 of student loan debt, but just, I’ve run out of money in the middle of the month and I need some cash.

Even is really interesting. They basically do income factoring. You set up your paycheck and that can be a regular paycheck or, for a lot of customers, an irregular paycheck. You might be an Uber driver or Lyft driver or a shift worker, a hourly worker who might have a regular shift. They basically look at your income stream and will underwrite your overdraft at a much lower cost because they know with high confidence that you’re going to get paid some amount in the next n days. And that’s a really interesting model.

In terms of interesting trends, one thing worth noting is that the banks are paying attention. They are actually investing into technology. Every couple of months I see a feature that we launched a couple of years ago get adopted by a large bank. It’s a bummer in that, you know, hey, that was a competitive advantage for us. Or at least a short-term competitive advantage. But that is what also makes me happy. Maybe Wells Fargo or Bank of America launching the fact that you can block your card from your phone is not a huge change in the industry, but it is showing that they can add new things and make it better, at least from a basic user experience perspective.

Who has the best banking app, now?

Banks for the most part haven’t changed. It’s great to launch the ability to block a card from your phone, but if you don’t block it on time and something happens, you get charged an overdraft fee and you have to go through horrible customer service to get that fixed. In which case, who cares how good the app looks? I have to stand by the blog post I wrote like eight years ago. USAA still offers great end-to-end service.

Finally, I apologize in advance, but, blockchain? Has it had any effect at all?

I think we’re of a similar mind on this one. Going back to my comment earlier, the fundamental problem of moving money around over the internet is not hard. It’s no different from moving information over the internet. I don’t think centralization is the major problem to be solved in payments.