Does BBVA’s Simple Deal Still Make Sense?

The Simple deal just got complicated.

Banking services provider Simple was purchased by BBVA, the second largest bank in Spain, for $117 million a few months ago, but new reports indicate that its growth and user base may be much lower than anticipated.

Quartz obtained a leaked email which says that Simple’s having issues attracting and keeping users. According to the report, Simple has just 33,387 active users in April, which was a 4.5% increase from March. Most reports around the time of the acquisition had the number at 100,000. The internal email, accidentally sent to a Quartz reporter, noted that “customer acquisition is slower than expected” and “deposits per customer are growing slower than expected.”

In a blogpost, Simple CEO Joshua Reich responded to the Quartz report, saying Simple has a “higher standard” than most financial institutions, who define an “active user” as someone who makes one financial transaction a month. The post also mentioned that Simple has seen 330% growth over the past year — mostly through word of mouth — and that the company is planning on expanding its marketing reach. It certainly has the funds to up its marketing spend now.

In light of these new numbers, the BBVA acquisition looks even more dubious. Simple was acquired by BBVA back in February and was widely reported to have approximately 100,000 users. According to consultant Serge Milman, who spoke to American Banker in the article, “it [BBVA] paid $117 million for a company with 100,000 customers, or $1,200 per customer.” Milman also said that, at that price, it was “awfully expensive” and that banks typically pay around $300 to $400 per customer in an acquisition. At even 100,000 users, many were doubting the deal. We can only imagine what they think now that the user base is revealed to be even lower than generally anticipated.

If BBVA didn’t buy Simple for the 33 thousand customers, maybe Simple was purchased for its technology? The startup certainly has innovative technology, but Milman said that BBVA could build a similar platform in a few months for “half a million dollars.”

Most likely, Simple was acquired for its development team. At the time off the acquisition, Bank Innovation wrote “the need for talent that can think creatively about banking is starting to accelerate, for banks like BBVA…” The need for banks to improve their IT departments has been well-documented. Bank Innovation spoke to Chris Van Der Stad, Chief Technology Officer of Fiserv’s Open Solutions division. Fiserv, a financial software provider, has a platform, inherited from open Solutions, which it acquired in 2013, where developers can create apps for financial services and banks. Van Der Stad said many clients are understanding the need for a better IT department and are looking to hire developers straight out of college. These developers are millennials who understand what younger customers look for in apps and technology.

While Simple’s user base may not be as high as initially anticipated, the service is still one of the few innovative platforms offering next generation financial services specifically geared to the next generation of customer.