Chime won’t rule out bank charter pursuit, COO says

Chime is a fintech, not a bank. But that’s a distinction the company is constantly evaluating, an executive said this week, particularly amid a regulatory climate seeming more amenable to fintechs obtaining bank charters.

“We would never rule it out,” Mark Troughton, the fintech’s chief operating officer, said of pursuing a bank charter. Chime works with Stride Bank and The Bancorp Bank to offer its customers Federal Deposit Insurance Corp.-insured banking services.

Under the Trump administration, banking regulators have signaled a greater appetite for chartering, and that’s inspired companies to pursue industrial loan company charters, cryptocurrency firms to seek trust charters, and fostered an uptick in de novo bank applications. Brazilian fintech Nubank has applied for a charter, and U.K. fintech Revolut is eyeing one, too.

“We applaud what regulators are doing right now in terms of opening up the chartering process and making charters more available to reputable players,” Troughton said in a recent interview.

Pursuing a charter is something the San Francisco-based fintech reevaluates every six months, he said.

“Today, we feel like the advantages of the bank partnership model are greater for us than the costs,” he said. “Now, that may change over time, and we will continue to evaluate that.”

Chime, founded in 2012, went public in June. As of the third quarter, the fintech has about 9.1 million active members – up by about 400,000 from the second quarter, and 21% year over year, according to quarterly earnings materials. 

Troughton pointed to the results of a recent J.D. Power survey as a sign of the traction Chime is gaining in the market.

“There’s a massive shift happening in banking today, and the leaders in core checking accounts in the next two or three years are going to be very different to what they have been in the last few,” Troughton said. 

The consumer insights and analytics company’s polling from August and September revealed 13% of new checking accounts opened in the third quarter were with Chime. That outpaced all other banks, including JPMorgan Chase (9%), Wells Fargo (7%) and Bank of America (7%). 

To be sure, Chime has plenty of ground to gain, since those big banks have tens of millions of consumer customers. 

“Our longer-term aspiration is to be the leading provider of primary financial relationships in the U.S.,” Troughton said. “We think we can really get there in the next few years.”

Chime’s core market is what it labels “everyday Americans,” the roughly 200 million people making up to $100,000 annually. The company has positioned itself as a financial services provider that stays away from overdraft, monthly service or minimum balance fees, and offers credit building and short-term liquidity services.

Troughton sought to distinguish Chime’s business model and focus from those of bank competitors, saying the needs of customers Chime aims to serve are “quite different” from those of high-net-worth consumers that banks target. 

Traditional banks’ reliance on net interest margin makes it challenging to serve customers with low balances in their accounts, while Chime’s payments-driven business model relies on interchange fees, Troughton said.  

“On the product and the cost side, and increasingly on the brand side, we feel like we’re getting stronger relative to traditional banks, as we get bigger, and we hope to try and accelerate that gap over time,” he said.

To generate enough revenue per user, Chime has sought to focus on building long-term, primary account relationships, Troughton said. Large banks such as PNC and Truist have recently highlighted their aim to increase primacy with customers and foster more engaged, durable relationships. 

From Chime’s earliest investor pitches, the company has been focused on primacy and getting customers’ direct deposits, Troughton asserted. 

“Venture capitalists were telling us, ‘But you can’t just create a primary financial relationship. Surely you have to go in with a wedge product, like a savings or investing or something like that, and then build a relationship over time,’” he said. “It doesn’t work that way.”

J.D. Power also pointed to Chime’s high conversion rate for customers considering opening checking (77%) and savings accounts (86%), noting the fintech is not only drawing new customers from traditional banks, but also from the likes of SoFi and Cash App.

“Eighty-five percent of people who come to Chime come from a relationship with a large bank,” Troughton said. “These are everyday Americans who are part of the banking system. We’re just offering a better solution. This is not unbanked or low-income people.”