How Chime Makes Money

Chime's banking app makes money from debit card transaction fees

Chime operates an app that allows its users to create checking and savings accounts, as well as offering a debit card in partnership with Visa. Instead of charging account fees, Chime makes money by taking a portion of the transaction fees that Visa charges merchants when customers use Chime’s debit card. Chime offers customers the option to get paychecks directly deposited two days early. It also offers two automatic saving features, one that lets customers round up debit-card payments to the nearest dollar, sending the rounded amount to their savings account, while the other automatically directs a percentage of each paycheck to a savings account. For customers with direct deposits of $500 or more a month, it offers up to $100 in fee-free overdrafting.

Key Takeaways

  • Chime is an app that lets people open fee-free checking and savings accounts with direct deposit and a debit card.
  • Chime makes money by taking a portion of the transaction fee charged to merchants when people use its debit card.
  • Chime is a "neo-bank" or "challenger bank", a new type of fintech startup that provides no-fees consumer banking without physical bank branches.

Chime's Industry

Becoming formally designated as a bank is a complicated process due to U.S. financial regulations. And like many similar apps, Chime is not technically a bank. Instead, the services Chime offers to its customers are handled by two small banks, The Bancorp Bank and Stride Bank, neither of which is publicly traded.

This type of fintech startup, which provides online-only banking services, is called a “neo-bank” or “challenger bank.” This new breed of service provider is increasingly competing with regulated banks in key parts of consumer banking. The average U.S. customer today pays $329 a year in banking fees according to Chime, and the main thrust of neo-banks is to provide an alternative source of checking and savings accounts with few or no customer fees. This mirrors the rush to slash prices throughout the financial services industry as brokers eliminate trading fees and ETFs lower money-management fees. Chime is one of the biggest emerging names in the field, but it has competitors in the U.S. and globally. Some of the biggest are the German neo-bank N26, backed by billionaire Peter Thiel, and Brazil-based Nubank.

Fundraising and Financials

As of February 2020, Chime had 8 million accounts, up from 6.5 million a few months earlier in December 2019. It is important to note, however, that because many customers have both checking and savings accounts, and some accounts may be inactive, its number of customers is lower. According to Crunchbase, Chime has raised $1.5 billion dollars over 8 funding rounds, the most recent of which was on September 18, 2020. As of that latest fundraising round, Chime was valued at $14.5 billion.

History and Leadership

Chime was founded in 2013, though its app wasn’t offered to consumers until 2014. It was co-founded by Chris Britt, current CEO, and Ryan King, current CTO. Britt previously worked at Visa and at Greendot, a financial services company that offers prepaid, reloadable debit cards. King worked at now-defunct online address-book firm Plaxo and Comcast.

Recent Developments

Chime has engaged in preliminary talks with investment banks about a possible stock market listing that would value the company at more than $30 billion, people familiar with the matter told Reuters in March 2021. CEO Chris Britt said last September that Chime was aiming to be ready for an initial public offering (IPO) within the next 12 months. However, he declined to comment on any IPO plans to Reuters, saying that the company was considering all options.

Chime surpassed Robinhood Markets Inc. as the most valuable U.S. fintech start-up after its latest funding round in September 2020. Robinhood offers commission-free trading of various securities, such as stocks, ETFs, and cryptocurrencies.

Chime has begun to face rising competition after European banking app N26 started accepting U.S. customers in July of 2019. Chime also may face a bigger threat. Rival neo-bank Varo won U.S. approval to become a real bank in February 2020. Varo is the first neo-bank to get FDIC approval to become a real bank, so it no longer needs to partner with other banks to take deposits.

How Chime Reports Diversity & Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Chime and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Chime releases. It shows Chime does not disclose any data about the diversity of its board of directors, C-Suite, general management, and employees overall. It also shows Chime does not reveal the diversity of itself by race, gender, ability, veteran status, or LGBTQ+ identity.

Article Sources

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