how-does-chime-make-money

How Does Chime Make Money?

Chime is an American neobank (internet-only bank) company, providing fee-free financial services through its mobile banking app, thus providing personal finance services free of charge while making the majority of its money via interchange fees (paid by merchants when consumers use their debit cards) and ATM fees. 

Origin story

Chime is an American neobank company (internet-only bank) founded by Chris Britt and Ryan King in San Francisco in 2013.

Through a mobile banking app, Chime provides fee-free financial services. Free from the constraints of maintaining physical bank branches, Chime instead has a focus on helping customers develop healthy financial habits. Indeed, the Chime Credit Builder product is aimed at Millennial and Gen Z consumers as a means of building their credit scores.

Chime also seeks to simplify the banking process for ordinary individuals. Users can sign up for an account in under two minutes by using video authentication to verify their identity.

With a Chime-issued Visa debit card, consumers have fee-free access to over 60,000 ATMs across the United States.

Chime revenue generation

It’s important to note that Chime does not charge account-keeping fees.

Instead, it makes the majority of its money via interchange fees. These are fees merchants pay to financial institutions whenever a consumer uses their debit card.

Chime takes a portion of the 1.5% interchange fee paid from the merchant to Visa in each transaction.

This may not sound like a significant revenue source at first glance. However, consider the fact that on average, Chime customers make 40 transactions per month. With over 8 million customers and counting, one can begin to appreciate the scale of eligible transactions. 

Adding to this lucrative model is the longevity with which American consumers hold bank accounts. Indeed, the average adult in the United States has used the same checking account for the previous sixteen years. A further 26% of account holders have maintained the same account for more than twenty years.

Bank interest

If they so desire, Chime customers can also open a high-interest savings account with an annual percentage yield (APY) of 1%.

The company then lends out this capital to banks and other financial institutions and collects the resultant interest – also known as net interest margin.

ATM fees

When a customer makes an ATM withdrawal outside of the VPA and MoneyPass network, Chime charges a fee of $2.50.

This is a growing source of income for the company, even though consumers have access to more than 38,000 fee-free ATMs. According to financial data obtained by news service Axios, ATM fees now comprise 21% of Chime revenue.

Key takeaways:

  • Chime is a North American neobank company with a focus on financial literacy and simple banking. It does not own or operate physical bank branches.
  • Instead of collecting account-keeping fees from the consumer, Chime has a core focus on merchant interchange fees. With over 8 million Chime customers making more than 40 transactions a month, this represents a significant income source for the company.
  • Chime also makes money by lending customer money to other banks and collecting the interest. Despite the availability of fee-free ATMs, the company has also seen revenue growth from its $2.50 ATM dishonor fee.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"