Neobanks are providing a digital version of traditional banking and innovatively working on building customer-centric products as part of their collective mission to build trust in new-age FinTech banking services. This trust is demonstrated by an expanded customer base, continuous investments in fundraising rounds, and high market valuations.
A San Francisco-based unicorn, Chime, recently raised $485 million in its Series F funding. With this funding round, the current valuation of this neobank stands at $14.5 billion, surpassing Robinhood (a massive retail trading platform valued at approximately $11.2 billion with over 10 million customers). Chime also surpassed Brazil’s Nubank, valued at $10 billion in July 2019, with a customer base of 25 million.
Chime was founded in 2013 in San Francisco with a seed capital of $3.8 million. Over seven years, it has raised eight rounds of funds with $1.2 billion in total funding. The post-money valuation of $14.5 billion of Chime is with a customer base of over 8 million users.
What Is Happening in the US Neobanking Space?
Neobanks are FinTech-founded digital-only banks without physical branches, primarily operating on a partnered license in the market. Solutions and services provided include checking and savings accounts, lending, remittance, money transfer services, insurance, and mortgages—entirely via mobile applications.
The global neobank market was valued at $2,800 million in 2018. It is expected to reach $14,200 million by the end of 2024, expanding at a 38.3% CAGR between 2019 and 2024. The US is home to some of the oldest neobanks, such as Simple (2009) and Moven (2011). However, Europe has taken over as the new players’ market.
Traditional banks still hold a majority of the market share in the US. During lockdowns, recent customer deposit trends indicate that customers still trust large traditional banks with their money over new-age banks, especially in crises. Customer trust has always been the holy grail of the banking industry. Neobanks have a long road ahead of them to match the trust built by traditional banks. One way to build this trust is to capture them young and participate in their early phases of life. Hence, millennials are a key target segment for many neobanks.
Interestingly, neobanks have been some of the fastest-growing players. Top digital banks are doubling their customer base in 2–3 years. However, owing to the bullish capital market, their market value (valuation) growth is much higher than the customer growth rate.
Which Are the Biggest Players?
Among digital banks, Chime has the largest market share.
Varo, the third-largest player by market size, recently became the first neobank to receive a US banking license. Revolut has indicated that it would soon apply for a bank charter in the US. This will allow the lender to operate anywhere in the country.
Cost-effective banking, fast servicing, advanced banking features, healthy interest rates, and customer convenience are the prominent drivers of the growing neobanking market.
Chime: One of the Fastest-Growing Neobanking Players in the US
With over 8 million users, Chime holds approximately a 2.4% share in the US banking market. It has come a long way from its launch of fee-free overdrafts and monthly maintenance accounts. The Bancorp Bank and Stride Bank provide banking services offered by Chime.
Focusing on millennials in the post-crisis US market, Chime launched its technology-enabled banking services in 2013. Its unique approach did not focus on bank fees or profit from customers but rather on providing beneficial services to customers.
Chime started with two attractive propositions:
- It offered digital-only, branchless banking when traditional banks struggled with major regulatory changes.
- It targeted millennials who found it difficult to maintain or upkeep their banking relationships due to associated fees and charges. It removed overdraft fees and subsequently removed monthly maintenance fees from customer accounts.
Chime offered FinTech-enabled, feature-based banking for mobile payments, savings tools, and payroll advances that worked automatically.
Key Features of Chime’s Technology-Enabled Products
‘Get paid early,’ ‘online banking,’ ‘fee-free overdraft,’ ‘mobile banking,’ ‘automatic savings,’ ‘mobile payments,' and ‘security and control’ are the key features of Chime’s technology-enabled products. In June, Chime entered the credit card market with its ‘Credit Builder’ product.
There are a total of 24 investors in various fundraising rounds for Chime. The leading five investors are DST Global, Menlo Ventures, Cathay Innovation, Aspect Ventures, and Crosslink Capital. The increasing number of investors underscores their confidence in the neobank and the success of its recent feature rollouts.
Chime’s success can be attributed to the fact that it regularly updates its platform with the latest technology-enabled products for customers. In addition, its virtual identity has promoted its agile evolution.
What Does the Future Look Like for Chime?
With its recently upgraded valuation and funding, Chime plans to hire talent, build new products, and acquire players with complementary products. It had acquired Pinch, a credit score improvement service, in late 2018. In addition, it may expand its product offerings by looking for more innovative product acquisitions. The FinTech unicorn expects to be ‘IPO ready’ in the next 18 months, with no plans for going public in that time frame.
Chime has strong customer acquisition rates. According to eMarketer estimates, Chime is expected to double its customer base by 2024. In addition, investor trust is reflected in the latest round of funding and its valuation at $14.5 billion, about 900% higher than its previous valuation ($1.5 billion) 18 months ago.
Appreciated as an industry leader, Chime may lead the way with disruptive products that cater to multiple customer segments, not just millennials. Tiered product sets and credit solutions would seem to be the future direction for this FinTech unicorn to monetize better and sustain an industry-leading position. Chime is now the most valuable American FinTech startup serving retail customers.
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