Aug 13, 2021, 

04:30pm EDT | 4,471 views

Chime Raises $750 Million At $25

Billion Valuation: Is The
Challenger Bank Really Worth
That Much?
Ron Shevlin Senior Contributor
Fintech
Observations from the Fintech Snark Tank

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Chime Founder & CEO Chris Britt (Photo by Kimberly White/Getty Images for TechCrunch) GETTY

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OBSERVATIONS FROM THE FINTECH SNARK
TANK

According to the Wall Street Journal:

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“Chime Financial Inc. raised $750 million in its latest funding round, in a
move that values the financial-technology startup at about $25 billion and
sets it up for an initial public offering as early as next year.”

The fintech continues its meteoric rise in valuation, growing from a $1.5
billion valuation in early 2019, to $14.5 billion in 2020 when it raised $485
million from funds including Tiger Global and Coatue Management LLC.

Chime’s Featurization Strategy

Chime’s valuation has risen in lockstep with its customer growth, which a
July 2021 study from Cornerstone Advisors puts at the 20 million mark.

The fintech has done a lot more than just provide a better mobile banking
experience for consumers.

Chime competes with a “featurization” strategy. The fintech certainly offers

a good mobile user experience and touts no fees to attract low- to middle-
income consumers. But there are three features of the company’s product
offering that are key to its success:
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1) Early access to money. Nearly a quarter of Chime customers said they

chose the fintech as their primary bank because it offers 2-day early access
to their direct-deposited paychecks, as well as to government stimulus and
tax refund checks.

2) Spot Me. This product feature lets Chime customers make debit card
purchases that overdraw on their accounts with no overdraft fees. Chime
customers with monthly direct deposits of $500 or more are eligible to
enroll. According to Chime’s website, “limits start at $20 and can be
increased up to $100 or more, based on factors such as account activity and
history.”

3) Credit-builder credit card. Chime’s predominantly low- to middle-

income consumers aren’t in the crosshairs of the big credit card issuers’
marketing efforts. According to Cornerstone, 15% of Chime’s primary
banking customers either have the card or are on its wait list. To get the
card, a customer must have a Chime Spending Account and have set up their
direct deposit with Chime.

Is Chime Really Worth $25 Billion?

As a point of comparison, Chime’s $25 billion valuation puts it just behind
regional bank Fifth Third’s $26.6 valuation. Fifth Third, however, has
roughly 4 million checking account customers in contrast to Chime’s 20
million customers.
The important question to answer is: Who are those Chime customers?
According to Cornerstone’s research, Chime’s customer base is significantly
different from the overall American population in terms of:

Age. No big surprise here: 68% of Chime customers are 40 years old
or younger. In the broader US population, just a third of adults are
Gen Zers or Millennials.

Race. One-third of Chime customers are Black or African-

Americans, who comprise 11% of the rest of the population.

Income. The average income of Chime customers is $39,000 versus

$63,000 for all Americans. Overall, 62% of Chime customers earn
less than $35,000 compared to 34% of other consumers.

Education. Just 16% of Chime customers have a college degree or

higher. In contrast, 40% of non-Chime customers have earned a
college degree.

Employment. One in five Chime customers is unemployed, split

between 16% who are not employed and looking for employment, and
4% who are unemployed but not looking.

Financial health. Among all American adults, three in 10 consider

their financial health to be “dire” or “struggling.” A little more than
half (54%) say they’re “managing” and 16% say they’re “thriving.”
Among Chime customers, however, 57% categorize their financial
health as dire or struggling, and just 8% are thriving.

For a company that doesn’t charge fees on its financial products,

is this the kind of customer base that will support a flow of
profits that warrants a $25 billion valuation?

Proponents of the high valuation will argue that Chime will expand and
grow its customer base into other segments of the population.
I’m not so sure.

While Chime has grown its overall customer base, the percentage of Gen
Zers that consider Chime their primary checking account provider declined
between October 2020 and July 2021 according to two Cornerstone
Advisors consumer studies.

In that timeframe, other digital banks have increased their share of primary
status including:

PayPal. Five percent of Gen Zers, 6% of Millennials, and 4% of Gen

Xers consider PayPal the provider of their primary checking account
—roughly equal to Chime’s share of primary status.

Current. Roughly 1.43 million consumers now call their Current

checking account to be their primary account, up from 712,000 in
October 2020.

Dave. Almost 910,000 consumers—nearly 80% of whom are Gen Z

or Millennials—named Dave as their primary checking account
provider in July 2021. That’s more than double the number from
October 2020.

Square Cash. Nearly 685,000 Americans consider Square Cash to

be their primary checking account—even though it’s not a checking
account. And Square Cash’s demographics looks very much Chime’s,
disproportionately skewed to African-Americans and low-income
consumers.

Chime’s Three Looming Threats

Chime has done an amazing job at customer acquisition and dominates the
digital bank space. But I’m not buying Chime at a $25 billion valuation.
There are three looming threats to the fintech’s continued growth and path
to profitability:
1) Emerging niche digital banks. Chime and Varo have been battling it
out for the low- to middle-income consumer segment in the digital banking
space, but as players like First Boulevard, OurBanc, and Greenwood gain
traction in the African-American community they’ll stunt Chime’s growth.
Other niche neobanks will also chip away at both Chime’s existing and
potential customer base. Translation: Chime’s hockey stick growth curve
may be upside down.

2) Walmart. Low- to middle-income consumers comprise Walmart’s core

customer base. The retailer’s existing financial service offerings clearly
haven’t stunted Chime’s growth. The big unknown is what Walmart’s fintech
plans are. My hypothesis is that Walmart wants to build a super app that
would bundle a wide range of services, not just retail and financial. If
Chime’s plan is to expand beyond financial products (like Revolut with its
travel agency), it better get a move on if it hasn’t done so already.

3) Square. From a demographic perspective, Square Cash App users look a

lot like Chime’s customers. With its seller ecosystem services, Square
Capital, and now a business checking account, Square has created a business
model that goes well beyond just making money on interchange. With its
crypto services and the acquisition of Tidal, Square has diversified its
revenue sources from its consumer base.

In my book, Chime simply isn’t a $25 billion company. But what a $25
billion valuation could do for them is put them in a position to make some
acquisitions that could jumpstart the company’s path to earning that
valuation.

Follow me on Twitter or LinkedIn. Check out my website. 

Ron Shevlin

Ron Shevlin is the Managing Director of Fintech Research at Cornerstone Advisors,

where he publishes commissioned research reports on fintech trends and advises
both… Read More
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