How Chime Makes Money

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

Reviewed by Somer Anderson

You may have seen the ads on TV for Chime. And you may be left wondering: What does this company do? Chime is a financial technology (fintech) company and isn’t actually a bank or financial institution. It operates an app and partners with banks to provide users with financial services. Among these services include access to checking and savings accounts and a branded Visa debit card. But just how does the company make money? This article provides an overview of the company, its financials, and revenue streams.

Key Takeaways

• Chime is a financial technology company that offers consumers an app with financial services.
• Chime is considered a neo-bank or rather than a financial institution.
• It partners with two banks to provide its users with no-fee checking and savings accounts, debit cards, and other financial services.
• Chime makes money by taking a portion of the transaction fees charged to merchants when people use its debit card.
• Although Chime is one of the leading neo-banks, it faces competition from other neo-banks as well as challenger banks and traditional banks.

Chime: An Overview

As noted above, Chime is a fintech—not a bank. Banks have to be formally designated, which is a complicated process due to U.S. financial regulations. Instead, Chime provides an app and provides its users with financial services. As such, it’s called a neo-bank because it’s partnered with existing institutions to offer its services to users online. Chime’s partners are two small banks, The Bancorp Bank and Stride Bank.

Chime offers the following services through these two banks:

• No-fee checking and savings accounts
• Chime-branded Visa debit card
• The option to get paychecks directly deposited two days early
• Fee-free overdraft of up to $200

The company 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. Users must have a checking account through Chime in order to have a Chime savings account.

Chime is one of the biggest emerging names in the financial industry. Despite this, it has pretty stiff competition 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.

Important

Stride Bank is not publicly traded. The Bancorp Bank is listed on the NASDAQ under the ticker symbol TBBK.

Fundraising and Financials

Chime is a private company, which means it’s not publicly traded on any stock exchange. The company makes money by taking a portion of the transaction fees that Visa charges merchants when customers use Chime’s debit card.

The company’s users exceed 22 million, according to a March 2024 article from Forbes. Chime’s app and services are very popular with Millennials. It is important to note that some of the customers may be inactive, or rarely active.

According to Crunchbase, Chime raised $2.3 billion dollars over nine funding rounds, the most recent of which was on Aug. 13, 2021. Valued at less than $1 billion in 2018, the company surpassed that, exceeding $25 billion in 2021.

History and Leadership

Chime was founded in 2013. But it didn’t make its debut in the financial industry until the following year. The company, which is based in San Francisco, was co-founded by Chris Britt and Ryan King.

Just like other neo-banks, Chime’s goal was to compete with regulated banks in key parts of consumer banking. This mirrors the rush to slash prices throughout the financial services industry as brokers eliminate trading fees and exchange-traded funds (ETFs) lower money-management fees.

Britt, who serves as Chime’s chief executive officer (CEO). previously worked at Visa and at Greendot, a financial services company that offers prepaid, reloadable debit cards. King was also in the financial services industry, working at now-defunct online address-book firm Plaxo and Comcast before co-founding Chime.

Recent Developments

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

The company began facing rising competition after the European banking app N26 started accepting U.S. customers in July of 2019. Other, newer rivals are also trying to chip away at Chime’s success—notably Varo, which won U.S. approval to become a real bank in February 2020. Varo is the first neo-bank to get approval from the Federal Deposit Insurance Corporation (FDIC) to become a real bank As such, it no longer needs to partner with other banks to take deposits.

Chime engaged in preliminary talks with investment banks about a possible stock market listing that would value the company at more than $30 billion, according to people familiar with the matter. In 2020, the company’s CEO said that Chime was preparing for an initial public offering (IPO) within the next 12 months. But he declined to comment on any IPO plans to Reuters, saying that the company was considering all options.

How Chime Reports Diversity and 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.

Read the original article on Investopedia.