How Chime Became America's Biggest Digital Bank

Forbes

For decades, it’s been a riddle in banking: how do you build a sustainable and profitable business serving low and middle-income consumers? Sixteen years ago, Chris Britt, then chief product officer at Green Dot, believed he’d discovered the answer—direct deposit of paychecks.   Green Dot was selling prepaid debit cards to cash-strapped Americans without traditional bank accounts, and Britt saw that customers who had their paychecks automatically deposited into their Green Dot accounts used the card to pay virtually all their expenses. With each debit card swipe, Green Dot pocketed part of the interchange fees–the 1% to 2% charge merchants pay to accept debit and credit cards.  “The people on direct deposit were clearly the whales of the business,” says Britt, 51, the cofounder and CEO of Chime, the nation’s largest digital-only bank with $1.5 billion in annualized revenue and seven million customers using its cards for $8 billion a month in transactions.  Read the full story on Forbes: https://www.forbes.com/sites/jeffkauflin/2024/05/03/exclusive-the-inside-story-of-chime-americas-biggest-digital-bank/?sh=4f40891cfb0d  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00 Here's your Forbes Daily Briefing for Monday, May 6.

00:04 Today on Forbes, the inside story of Chime, America's biggest digital bank.

00:12 For decades, it's been a riddle in banking.

00:14 How do you build a sustainable and profitable business serving low and middle-income consumers?

00:20 Sixteen years ago, Chris Britt, then chief product officer at Green Dot, believed he'd

00:26 discovered the answer—direct deposit of paychecks.

00:30 Green Dot was selling prepaid debit cards to cash-strapped Americans without traditional

00:34 bank accounts, and Britt saw that customers who had their paychecks automatically deposited

00:38 into their Green Dot accounts used the card to pay virtually all their expenses.

00:44 With each debit card swipe, Green Dot pocketed part of the interchange fees—those are the

00:49 1 to 2 percent charge merchants pay to accept debit and credit cards.

00:53 Britt says, "The people on direct deposit were clearly the whales of the business."

00:59 Britt, who is 51 years old, is now the co-founder and CEO of Chime, the nation's largest digital-only

01:05 bank with $1.5 billion in annualized revenue and 7 million customers using its cards for

01:12 $8 billion a month in transactions.

01:16 It's taken Chime 12 up-and-down years to get to this point, and it's still not consistently

01:20 profitable.

01:21 But through it all, Britt has stayed true to his mission of serving the less affluent.

01:26 Now, with an initial public offering in his sights possibly as early as next year, Britt,

01:31 his executive team, and some of his investors have opened up to Forbes, providing new details

01:36 about the business, its history—including missteps—and its future plans.

01:41 Until now, Chime hadn't even disclosed its 7 million customer count.

01:46 Britt is sitting in his spacious corner office in a 48-story building in San Francisco's

01:50 ailing financial district, with Chime's name plastered in big green letters in three

01:55 different spots on the building's exterior.

01:58 It signed the office lease in September 2021, taking a 192,000-square-foot complex spanning

02:04 six floors.

02:06 The space is flush with plants, five fancy snack bars, a free cafeteria with an ample

02:11 menu, and an expansive roof deck with sweeping views.

02:15 On this spring break day in the world of hybrid work, the offices have an empty feel.

02:20 About three-fourths of Chime's local employees typically come into the office on Tuesdays

02:23 and Wednesdays, the company says.

02:27 The building tells the tale of Chime's heady expansion at the height of the pandemic-driven

02:31 fintech boom, its strategic retreat—it laid off 12 percent of workers in 2022 and

02:37 still hasn't opened one of its six floors—and the more sustainable growth path it seems

02:42 to be on now.

02:44 In August 2021, Chime raised $750 million at a $25 billion valuation, bringing its total

02:51 funds raised to $2.3 billion.

02:54 Today, we estimate it's worth around $8 billion based on valuation multiples of comparable

03:00 fintech companies.

03:01 We also estimate that Brit and co-founder Ryan King, who heads the tech side, own roughly

03:07 5 percent of the company each.

03:09 That means they were briefly billionaires, on paper, and are now worth about $400 million

03:14 apiece.

03:15 In 2023, Chime's revenue grew an impressive 30 percent to about $1.3 billion, more than

03:22 $1 billion of which was gross profit.

03:25 But it spent about $270 million on marketing, according to media measurement firm Vivix.

03:31 And once you account for those and other costs, ranging from R&D to fraud losses, it lost

03:36 roughly $200 million.

03:38 This according to a person familiar with its finances.

03:41 Chime says it was profitable in the first quarter of 2024.

03:45 Crucially, it still has $900 million of cash to fund its short-term ambitions.

03:51 Chime is indisputably the top player among digital-only banks.

03:55 But it doesn't actually have a bank charter.

03:57 Rather, it partners with Bancorp Bank and Stridebank to offer banking products like

04:01 checking and savings accounts.

04:04 But when lumped in with real banks, Chime's market share is only in the low single digits.

04:08 Chase, for example, had 54 million active mobile customers at the end of last year.

04:15 So far, Chime has attracted largely young Americans earning between $35,000 and $65,000

04:21 a year to its free checking accounts and debit cards.

04:25 It won't give you a traditional checkbook, but you can send paper checks through its

04:28 app.

04:29 It's built a sticky business by requiring customers to set up direct deposit to get

04:33 access to a growing list of features, including $200 worth of free overdraft protection and

04:39 a secured credit card that helps build your credit score.

04:43 Britt and King claim that, by relying on technology and having no physical branches, their cost

04:49 to serve each customer is just one-third of traditional banks.

04:54 For full coverage, check out Jeff Kauflin's piece on Forbes.com.

05:00 This is Kieran Meadows from Forbes.

05:02 Thanks for tuning in.

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