Just 8% of US consumers consider an online bank like Chime or Varo their primary bank. But among consumers with two accounts, digital banks have a 14% market share, and of Americans with three accounts, they’ve captured 17% of the pie.
All told, consumers have 27 million accounts opened with online banks.
Chime: The 800-Pound Gorilla In Digital Banking
Chime, which recently announced a $485 million Series F funding round that valued the company at $14.5 billion, has a 35% share of all digital bank checking accounts. The next biggest competitors are Ally Bank with 9% of the digital banking market, and Varo Money with a 6% share.
How Chime has come to dominate digital banking isn’t just a lesson for other challenger banks—it’s a lesson for all banks and credit unions.
Chime’s Competitive Weapon: Featurization
Challenger banks compete on a number of value propositions including: 1) rates (e.g., Marcus and HM Bradley with above-market average savings rates), and 2) segmentation (e.g., Aspiration targeting environmentally-conscious consumers, or newly-launched Tenth addressing the wealth gap for African-Americans).
Chime, on the other hand, takes more of a “featurization” approach. It certainly has a good user experience and by touting no fees attracts consumers in the low- to middle-income brackets. But there are three features of the company’s offering that is key to its success:
1) Early access to their money. Nearly a quarter of Chime customers said they chose the fintech as their primary bank because it offering 2-day early access to their direct-deposited paychecks, as well as because Chime offered early access to government stimulus and tax refund checks.
2) Spot Me. This product feature lets Chime customers make debit card purchases that overdraw on their accounts with no overdraft fees. Chime customers with monthly direct deposits of $500 or more are eligible to enroll. According to Chime’s website, “limits start at $20 and can be increased up to $100 or more by Chime, based on factors such as account activity and history.”
3) Credit-builder credit card. Chime’s predominantly low- to middle-income consumers aren’t in the crosshairs of the big credit card issuers’ marketing efforts. According to Cornerstone’s research, 15% of Chime’s primary banking customer base either has the card or is on the wait list for the card—all within six months of launching the card. To get the card, a consumer must have a Chime Spending Account and have set up their direct deposit with the company.
Chime’s Marketing Tactics
Chime’s marketing efforts have proven to be very successful. What is the fintech doing right?
1) Website design. Look at most bank sites and the first thing they show site visitors are what products they offer. After you choose which product category you want (i.e., checking account, savings account, etc.), you then choose which product type you want (i.e., “essential,” “plus,” “platinum,” “student,” “senior,” etc.).
Chime’s site has an Accounts menu feature, too, but there are only three options: Spending Account, Savings Account, Credit Builder.
The fintech reinforces its featurization strategy, however, by showing site visitors the features of the products it offers because it knows consumers are choosing the fintech predominantly for one (maybe two) of the product features it offers.
Another aspect of Chime’s feature-supporting marketing efforts is its search engine tactics. Chime ranks highly on Google searches for its feature keywords. And consumers who search for a term like “free overdrafts” are taken directly to that page on the site—not the home page.
2) Use of artificial intelligence. According to Guy Yalif, CEO of Intellimize, Chime is using AI to create a sophisticated testing approach to determine which marketing tactics to deploy. According to Yalif:
“Chime’s marketing team was able to test 21 different ideas and 216 different versions of their homepage while improving its performance. Had they used a simpler A/B model to test out these 21 ideas, it would have taken nine years to do what they did in three months.”
3) Marketing spend. Unlike some challenger bank who believe word of mouth will help them scale, Chime spent $32 million on TV ads during the first eight months of 2019—$48 million on annualized basis.
It’s not all a bed of roses for Chime, however. They still face a number of challenges:
- Customer demographics. Two-thirds of Chime’s customers are under the age of 40. That’s not bad in and of itself, but just 15% have a college degree (vs. 44% for rest of the US population) and just 12% earn more than $75,000 per year (vs. 33% of other Americans).
- Need to generate/diversify revenue. Chime is too heavily dependent on interchange revenue.
- Rising cost of customer acquisition. To continue to grow and expand its customer base beyond low- to middle-income consumers, Chime will have to maintain its heavy marketing spend.
The Lessons For Incumbent Banks and Credit Unions
Take a look at the three challenges Chime faces…