Digital Bank Chime to Quadruple Revenues in 2019, Thanks to Direct Deposits


A growing crowd of startups bet you want to do your banking transactions on your smartphone. San Francisco-based Chime, which offers a debit card with no monthly fees or overdraft fees, has seen its revenue explode in the past year. In 2019, it will reach nearly $ 200 million, a four-fold increase from 2018, according to a person familiar with the matter. Now the company plans to expand into other products such as credit cards and investment services in its quest to become a full-service digital bank.

Chime attracted five million accounts, or roughly 3.3 million customers, based on an estimated average of 1.5 accounts per customer, through a few key strategies. First, it offered free products that banks traditionally charged money for, like basic checking accounts with no minimum balance, and bundled them into an app that customers rate very well. Second, he spent a lot on marketing. The startup invested $ 32 million in TV commercials in the first eight months of 2019, according to the research service Kantar, and this does not include online marketing expenses. None of these strategies would be possible without the $ 300 million that Chime has raised in venture capital.

Third, he’s convinced more than a million people to sign up for direct deposit, having their paychecks sent to their Chime debit account, according to a source. Reaching a large customer base is essential for Chime, in part because it does not target affluent users. Her average client is between 25 and 35 years old and earns between $ 35,000 and $ 75,000 a year. And the startup makes almost all of its money on the interchange (the 1-2% fee that banks charge retailers every time a debit or credit card is swiped), so Chime wants you to do all of your shopping. with your Chime card. If that can convince you to deposit your paycheck there, you are better equipped to use the card for shopping.

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To appeal to customers who use the card often, Chime requires that they sign up for direct deposit to access key features. If you want to access your salary two days earlier than with a traditional bank, you must sign up for direct deposit. The same is true if you want to overdraw your Chime account up to $ 100 without paying interest or fees. In almost all of his marketing materials, he encourages people to sign up for direct deposit. Chime processed more than $ 30 billion in transactions this year, up from $ 10 billion in 2018, despite a breakdown last month that prevented customers from shopping and seeing their balances.

Yet one big hurdle remains: Chime hasn’t proven it can persuade customers to use multiple products, a “bundling” strategy that is the cornerstone of traditional banks’ high profitability. Max Friedrich, an analyst at New York investment manager Ark, believes it will be “difficult” for digital banks to expand into more profitable categories like loans.

Chime plans to launch a new free feature to help users improve their credit scores next year, CEO Chris Britt said, although he declined to provide details. He also plans to launch a credit card in the first half of 2020 and eventually settle in personal loans. After that, it will launch investment services, such as low-cost exchange-traded funds and retirement services, potentially in 2021. Britt is also considering installment loans, where people can fund purchases in periodic installments.

Chime’s growth is strong, but can she build a profitable and sustainable business? Britt says Chime could be profitable today if he cut his marketing budget. He says his gross profit margin is “very high” and “looks like that of a software company.”

Two other important indicators of profitability are the cost to Chime of acquiring a new customer and the value of each customer over their lifetime. Traditional banks pay $ 750 to acquire new customers with a lifetime value of around $ 4,500, according to Dan Rosenbaum, partner at management consulting firm Oliver Wyman. It costs Chime less than $ 100 to acquire a client who signs up for direct deposit, Britt says, and those clients are worth “thousands” if you assume they stick around for 10 years. It’s a good place to be if Britt’s forecast of her clients’ value turns out to be correct.

New York-based digital bank MoneyLion, which targets Midwestern customers, pays $ 40 to $ 50 to acquire engaged customers who use at least three of the startup’s products. He says those users are worth between $ 1,200 and $ 1,500 if they stay with MoneyLion for two years.

Some believe digital bank ratings have gotten out of hand. In recent conversations with venture capitalists, Max Friedrich of Ark said: “The feeling was that the valuations of the challenger banks were too high and they expect them to fall. The chime is would have trying to raise new funds at a valuation of $ 5 billion, up from $ 1.5 billion just eight months ago. Britt won’t comment on the matter except to say that the business is already “well capitalized” and that “given the strength of the business … there is certainly interest from many potential investors.”


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