Is Chime ready for an IPO? It has more core customers than Chase

in San Francisco, Saturday, February 24, 2024. (` Photo/Jeff Chiu)Copyright 2024 The Associated Press. All rights reserved

OBSERVATIONS OF THE FINTECH SNARK TANK

Bloomberg reported that Chime, the leading fintech neobank, plans to go public in 2025. According to the report, Chime has not yet hired any investment banks. The unnamed source is a “person familiar with the matter,” and a company representative declined to comment.

Chime hasn't raised any funding since 2021, when the company was valued at around $25 billion. The neobank has not reported the number of its customers in recent years.

Chime has more than 38 million customers

Consumer research conducted by Cornerstone Advisors provides insight into Chime's customer base and demographics.

According to a July 2023 survey of U.S. consumers, Cornerstone estimates that Chime has more than 38 million customers – more than the number of checking account and/or payments customers of SoFi, Dave, MoneyLion and Current combined – more than three times the estimate Cornerstone for 2021.

Fintechs/NeobanksSource: Cornerstone Advisors

However, Cornerstone's numbers do not match those that some other fintechs have publicly reported.

Dave claims that it “provides 10 million members with banking, financial insight, overdraft protection, credit building and side hustle finding.” That's similar to MoneyLion, whose second-quarter 2023 securities filing claimed the company had “almost” 10 million customers.

Both claims may be true, but the Cornerstone survey asked consumers who they have a checking or payment account with. It is possible that not all 10 million Dave or MoneyLion customers have these account types.

How does Chime, with its 38 million customers, compare to the established banks?

Banks like Bank of America, Chase, Wells Fargo and other large regional banks have very different product lines, which makes a direct comparison of customer numbers almost impossible.

Chime has more core customers than Chase

However, it is possible to make a direct comparison between Chime and established banks by looking at the percentage of providers' customers that consider the companies their primary checking account provider.

Of Chime's 38 million customers, about half consider the neobank their primary checking account provider. That represents 8.1% of all American adults – 12.3% of Generation Z, 9.5% of Millennials, 7.5% of Generation X and 2.9% of Baby Boomers.

In contrast, Wells Fargo has an 8.5% market share, and JPMorgan Chase – the largest bank in the country (in terms of assets) – counts 7.6% of Americans as primary checking account customers.

Primary Checking Account Market Share

Source: Cornerstone Advisors

Other leading fintechs like SoFi, Current, MoneyLion and Cash App only have about a quarter of their customers considering these companies as their primary checking account or payment provider.

Is Chime ready for an IPO?

Chime has clearly demonstrated two important things on its path to IPO: 1) Sustained customer growth despite the “fintech winter” and 2) It has maintained a high percentage of primary customers who transact more frequently.

The big question marks for Chime are: 1) Can it continue to attract aspiring young consumers? 2) Will young customers “age out” of Chime as they grow older? 3) Can Chime expand into lending? and 4) Can Chime capture more share of the spending market?

Chime's customer demographics differ from those of megabanks

Not surprisingly, Chime customers tend to be younger – only one in four Chime customers are 45 or older. In contrast, 40% of Wells Fargo and Chase checking account customers are Generation X, Baby Boomers or older.

Chime customers have lower returns compared to major banks. Half of Chime customers make $35,000 or less a year, and only 15% make more than $75,000. Among Bank of America customers, half earn more than $75,000.

This demographic makes it difficult for Chime to expand into lending products.

Chime can diversify revenue streams

When asked by CNBC in 2022 how Chime makes money, Britt replied:

“[We’re] actually more of a payment transaction. Our members use us for their everyday spending and we make a small portion of that transaction when the card is used at the point of sale.”

Well, not all members.

More banks and credit unions are bundling digitally delivered products and services like roadside assistance, cell phone damage protection and identity theft protection with their checking accounts to increase their revenue.

A 2022 Cornerstone study found that across 14 different types of services, a high percentage of Chime customers are very interested in bundling those services with a Chime checking account.

Chime customers are interested in bundled services

Source: Cornerstone Advisors

What is Chime worth?

There's the $25 billion question. The $25 billion valuation came in 2021, before fintech valuations fell significantly – and rightly so, as many fintechs failed to achieve sustainable revenue and profitability.

Chime has bucked this trend.

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Ron Shevlin is Chief Research Officer at Cornerstone Advisors, where his research on banking and fintech trends helps shape the direction of financial institutions and fintechs. As the author of Forbes' Fintech Snark Tank and host of the What's Going On in Banking podcast, Ron is one of the world's leading fintech influencers and is a frequent keynote speaker at banking and fintech industry events. Connect with Ron on Twitter and LinkedIn.

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