Digital bank Chime is reportedly prepping for an initial public offering (IPO) at a date to be determined.
And though the minutiae of the company’s financial details have yet to be revealed — there’s no S-1 out yet as of this writing — Chime’s move to list its shares spotlights the continued rise of digital banking in a competitive environment that is only growing more populous, and heated.
That super-charged environment means the digital-only firms will have to do far more than offer prepaid cards or rely heavily on transaction-related fees.
The digital banks (more on the terminology in minute), of course, are the ones that offer a range of banking services that rival those of larger players that also have a brick-and-mortar component.
Which is not to say, of course, that the brick-and-mortar players are entirely absent.
Witness, for example, JPMorgan’s digital bank Chase, which is based in the U.K. and debuted last year.
LendingClub, of course, has expanded its platform with the purchase of Radius — in turn giving the company access to a consumer base with a few billion dollars’ worth of deposits already in place. Walmart, no stranger to brick-and-mortar commerce and omnichannel efforts, has reportedly been in the midst of building a FinTech startup.
As for FinTech Chime, the headlines this month note that an IPO might value the company at as much as $40 billion. The valuation offers a nod, of sorts, to the prospects of offering checking accounts and other services through purely digital channels.
Chime’s own approach, according to its site (where the firm explicitly states “don’t call us a bank”) is to “partner with regional banks to design member first financial products.” Through that model, the company has more than 13 million active users in place, and offerings include early access to paychecks and fee-free overdrafts up to $200, among other products and services.
This is not the first time that Chime has reportedly set its sights on a public listing. Back in March of last year, the company had been in “early talks” with investment banks for a listing.
An IPO, even with the current volatility in the market, signals confidence in the longer-term acceptance of banking done through apps.
But the valuation leaves the question as to what investors will get when the shares come to market. Recall that for many digital companies, Chime included, relying on transaction volumes (and revenues from those volumes to fund other product development) can be a tricky thing. When a consumer conducts a transaction using one of these company’s payment-network debit cards (say with Visa), the network collects interchange fees tied to payment processing (collected from the merchant) and pays a percentage of the fee to Chime.
Interchange rates are likely to be in regulators’ and lawmakers’ crosshairs, spurred by recent spats between Visa and Amazon, among other events. Any real haircut to interchange may spell trouble for Chime, et al.
Terminology in Focus
The terminology changes here and there, depending on who is using it: Digital banks, challenger banks, neobanks … and to be quite candid, in the U.S. at least, the nomenclature is becoming a bit clearer.
Chime is careful not to explicitly call itself a bank, after settling with the California Department of Financial Protection and Innovation to drop the term “bank” as it does not have an actual banking license.
As noted in this space in recent weeks, the U.K.’s Monzo is the latest firm to raise fresh funding after Chinese technology giant Tencent made a $100 million capital injection for a minority stake in the firm, as part of a larger $600 million fundraising round that has put the British digital bank’s valuation at as much as $4.5 billion.
For Chime, and for others, the drive toward digitization presents opportunities, which are of course being recognized by companies with deep pockets, such as JPMorgan.
How that might affect valuations tied to an IPO is thus far anyone’s guess.