The reviews on the BBVA-Simple deal are starting to come in, and they are not pretty.
First, the specs. BBVA agreed to acquire Simple today for $117 million. Simple has around 100,000 customers and says it processed $1.7 billion of transactions last year.
Brett King, the industry analyst and Moven founder, put it best: Simple was acquired for $1,170 per customer. WhatsApp was acquired for $42 per customer. And WhatsApp has 450 million customers. Others commenting on the deal on Twitter and elsewhere have congratulated the Simple team, but have found little to imply that this was a good deal for BBVA.
Simple is not a large venture. The truth is, that 100,000 of customers is small-community-bank territory. The average community bank that is a member of the Independent Community Bankers of America trade group holds around $240 million of assets. Despite those “$1.7 billion of transactions,” we doubt Simple had anything close to $240 million of assets. (Simple does not disclose its balance sheet.) As one industry observer commented on Twitter, there just wasn’t enough revenue out there for Simple. Part of the reason for this is because Simple did not own a bank charter, but rented the charter owned by The Bancorp. This added a whole layer of expenses into Simple’s operating model. Can BBVA assume The Bancorp’s position and make more money off Simple? Sure, but that’s not going to move the earnings dial at BBVA.
Rather, this is as much about the Simple team as it is about the Simple business. The need for talent that can think creatively about banking is starting to accelerate, for banks like BBVA and Capital One Financial Corp. (Capital One, it should be noted, acquired ING Direct last year and picked some 7 million deposit accounts, a far cry from Simple’s 100,000.) See Capital One’s CIO talk about that bank’s need for IT talent here:
I should add that one source told me that the innovation team at BBVA, in particular, has been specifically focused on reducing friction for its customer base and its product set. Simple certainly has made great strides in reducing friction, and BBVA will presumably find value in applying Simple’s technology across its bank. But, still, $117 million for that?
There just can’t be a comparison between the price BBVA paid for Simple to what Facebook paid for WhatsApp yesterday. No, the drivers of the deals are different, and that’s why even at $1,170 per customer, BBVA purchased Simple today.
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