Financial services

With its IPO pending, Chime should go beyond financial services

FINTECH SNARK TANK COMMENTS

Barron’s reported last week that Chime, the largest online bank in the United States, “may have suspended plans to go public.”

That’s not exactly news, as Forbes reported in February that the neobank was delaying its planned March 2022 IPO in light of falling fintech stock valuations.

In an interview with CNBC last week, Britt was optimistic about Chime’s prospects:

“The market turmoil has yet to reach the average everyday consumer. We’re seeing strong balances, robust transaction activity, people spending again, going out to eat…we’re definitely seeing an increase in fuel spending, which isn’t surprising.

Asked by CNBC how Chime makes money, Britt replied:

“[We’re] really more of a payments business. Our members use us for their day-to-day expenses and we do a small part of that transaction when the card is used at the point of sale. It’s very aligned with the consumer.

Chime Challenge

Kudos to Mr. Britt for calmly answering the CNBC reporter’s ill-informed questions about “providing consumer credit with a recession looming.”

Chime, of course, doesn’t do that, as Britt explained.

However, the challenger bank still has a big challenge to overcome: a demographic challenge.

Britt talks a lot about “average everyday consumers”, but Chime’s customers aren’t really “average”. According to consumer research conducted by Cornerstone Advisors, compared to other Americans, Chime customers:

  • Earn less. On average, American consumers have an annual income of around $65,000. In contrast, on average, Chime consumers earn 30% less, or $45,000.
  • Are less educated. Among the adult population of the United States, 31% have a bachelor’s degree or higher. However, among Chime’s clientele, only 8% have at least a bachelor’s degree.
  • Are in less good financial health. The Cornerstone study asked consumers to self-assess their financial health. Within the general population, 8% described their financial health as “poor” and 30% said they were “struggling” (including 48% “managing” and 14% “thriving”). More than half of Chime’s customers are in bad shape, with 12% in dire straits and 42% struggling.

So while Chime may see more “robust” spending among its customer base, fintech’s customer base may not be well positioned to sustain that spending as inflation rages and a recession looms.

Chime must become the Sam’s Club of the digital economy

What should Chime do to meet its challenge? Expand beyond payments and financial services.

One of Chime’s advantages over many other traditional financial institutions and fintechs is high customer satisfaction.

On a 10-point scale rating financial institutions and fintechs on the value they deliver to their customers and members, Chime beats out credit unions, community banks, megabanks, other challenger banks — just about everyone. world except USAA.

Chime needs to put that goodwill to good use by expanding what they sell to include other digitally delivered products and services such as roadside assistance, cell phone damage protection and device theft protection. identity, grouped with his payment account.

Across 14 different types of services, Cornerstone found that a higher percentage of Chime customers than other US consumers are very interested in getting these services bundled with a checking account from a bank or credit union (or Chime) even if they have to pay to get them.

Having positioned itself as a provider of “no-fee” financial products, the provision of ancillary products would pave the way for revenue generation. Also, offering products and services without deposit or credit (I can’t really call them non-financial) for a fee doesn’t violate its no-fee positioning.

And, in fact, many Chime customers are already using – and paying for – many of these 14 products and services, making it easier for the challenger bank to sell.

Sam’s Club reinvents itself

Sam’s Club had a similar challenge a few years ago, with a clientele heavily skewed towards low- to middle-income consumers. In 2016 and 2018, he announced plans to attract more affluent customers, but that wasn’t the key to his more recent success. What worked was to reinvent:

  • The shopping experience. According to Forbes, the company “created a 32,000 square foot store in Texas based on scan-and-go shopping technology, with consumers using their cellphones as a remote control and to scan and pay for products, then walk out.
  • Stores as distribution centers. The merger of distribution centers into existing stores from 2019 – before the pandemic – was a lucky break as the pandemic kick-started e-commerce, allowing Sam’s Club to provide more in-store pickup. efficient.
  • Wholesale pricing algorithms. As the Forbes article states, “the coolest thing about Walmart’s decision to buy Jet.com was the pricing algorithms that Jet.com was based on.”

Chime needs a similar reinvention.

Although Chime continues to grow at a healthy pace, challenger bank Current acquired more customers in 2021 than Chime, and Square Cash App is dominant among African Americans who make up nearly a quarter of Chime’s customer base.

What’s good for the goose…

A new report from Cornerstone Advisors advises traditional financial institutions to pursue the same strategy.

Banks need to create new value in their checking account offerings:

“To maintain the profitability of deposit accounts, community institutions must compensate for a declining revenue stream without resorting to punitive fees. The solution: bundle the value-added services consumers already have or say they want into checking account offerings and mobile banking apps. »

This process of bundling value-added third-party services into checking account packages is an example of what Cornerstone calls integrated fintech.

A financial institution with 100,000 checking accounts could generate almost $750,000 in additional revenue in the first year of an integrated fintech strategy. With adoption of embedded fintech subscriptions reaching 50% of checking accounts over five years, total subscription revenue could increase by more than 700%.


For a free copy of the report Building a Fintech Subscription Engine: How Embedded Fintech Can Help Banks and Credit Unions Fight the Revenue Slumpclick here or on the cover image.