Chime has become a household name in recent years, and many people started wondering how does Chime make money? After all, they don’t charge fees, so how are they staying afloat? Shouldn’t they be filling for Chapter 11 any day now?
The short answer is that Chime makes its money primarily by collecting interchange fee from Visa, every time you use your card. Chime also makes money from out-of-network ATM withdrawals, and by raising funds from investors like capital funds.
How much do American households pay in bank fees?
Americans pay a painful amount of money on banking fees each year. Reports suggest around $329 annually plus an additional $577 in hidden costs that include late fees, overdraft fees, fraud expenses, and the overall cost of bad credit.
That’s the cost of banking with a traditional bank. Also, by some estimates, traditional banks and credit unions generated $34 billion in overdraft fees in a single year. It’s a shocking amount!
A recent study has revealed that overdraft fees accounted for more than 50% of 6 reputable banks’ net income. The same study found that 9% of people who overdrew their bank accounts more than 10 times per year pay a massive 80% of total overdraft fees collected.
If your bank doesn’t support real-time notifications, you could unknowingly go into overdraft several times in a single day. Each time you would pay around $35 to your bank, even if you purchased a single cup of coffee or newspapers.
Luckily, the vast majority of digital banks don’t charge overdraft fees or any everyday banking fees, for that matter. As they have less overhead costs such as branches, offices, and even staff, they can get away with charging you much fewer fees than big banks.
We’ll learn precisely how Chime does this after we see what Chime is exactly.
What is Chime exactly?
You’d be forgiven if you thought that Chime was a bank. After all, they give you a bank card, and you keep money in an account. You can even get a savings account with a 0.50% APY.
But Chime isn’t a bank. They’re a financial technology company or fintech for short. They’ve teamed up with The Bancorp Bank and Stride Bank, and they’re the ones that provide you with the banking services.
“Nobody wants to go into bank branches, nobody wants to touch cash anymore, and people are increasingly comfortable living their lives through their phones,” Chime CEO Chris Britt told CNBC.
Chime did, however, use the term bank extensively on their website (their web address was chimebank) and even their ads. That’s why they faced pushback from regulators that forced them to stop doing it.
Chime is valued at $14.5 billion. Not too shabby for a company that was founded less than 10 years ago. But more on that later. Let’s finally get to the good stuff.
Find out more in our Chime review.
How does Chime make money?
Chime doesn’t charge any fees. They have no minimum balance fees, no monthly maintenance fees, no overdraft fees, no foreign transaction fees, and even no ATM fees if you use one of their 66,000+ fee-free ATMs. That’s more than the top three national banks combined, according to Chime.
They must be a charity then. Giving Americans bank accounts for free. Well, not exactly. You see, as I’ve mentioned earlier, they don’t have the overhead that traditional banks have.
That means they can still earn money even if they don’t charge their customers day-to-day fees. Let’s dive in a little bit deeper, shall we.
ATM fees? I thought you said that they have fee-free ATMs? Yes, that’s right. I mentioned that Chime had a network of 66,000+ ATMs that you can use free of charge, yet Chime acquires about 21% of its revenue from fees its customers pay for using out-of-network ATMs.
The fees do add up if you use an out-of-network ATM. Chime will charge you $2.50 per withdrawal, and the owner of the ATM will charge you a fee as well.
Here’s what they say on their website:
“If you use an ATM not owned by us for any transaction, including a balance inquiry, you may be charged a fee by the ATM operator — even if you do not complete a withdrawal. This ATM fee is a third-party fee amount assessed by the individual ATM operator only and is not assessed by us. This ATM fee amount will be charged to your Chime Spending Account.”
It’s not their fault you couldn’t find one of the 66k fee-free ATMs. They were forced to charge you, even though the third-party (ATM owner) probably only charges them 10-30 cents!
Chime’s revenue in 2019 was $200 million, and perhaps even more in 2020. 21% of that means that you people need to start using Chime’s ATMs!
According to Wikipedia, the interchange fee is a term used in the payment card industry to describe a fee paid between banks for the acceptance of card-based transactions.
Simply put, when you buy an item using your Chime Visa debit card, Visa takes a small percentage (1.4% – 2.5%) from the merchant and pays a portion of that to Chime. That, of course, adds up as Chime has 12 million users and counting, and they apparently make an average of 40 transactions per month.
Of course, there’s no free lunch because these fees are calculated into the selling price, and ultimately, we’re the ones paying for them and not the merchant. House always wins.
Combined, each Chime user is worth $208, to the company, according to Axios. Most of that comes from the interchange fees and the rest from out-of-network ATM fees.
Chime has raised a whopping $1.5 billion over ten funding rounds. They started in 2013 with a seed round of $3.8 million. Compare that with the last two in 2019 and 2020 that were $700 and $533 million, respectively.
26 investors fund Chime. Betsalel Elfassy and General Atlantic are the most recent investors.
They’ve come a long way in terms of fundraising and in terms of the sheer number of users; 12+ million.
How much is Chime worth?
Chime was valued at $14.5 billion in a private fundraising round in September. But the end isn’t even near for them as they held preliminary talks with investment banks, according to Reuters. The talks were about launching a stock market flotation that would value the fintech at $30+ billion.
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What fees does Chime have?
Chime doesn’t have any fees that traditional or even mobile banks have. There are no minimum balance fees, no overdraft fees, no foreign transactions fees, and no monthly fees.
The only real fee you can expect while using Chime is a $2.50 out-of-network ATM charge, but it details that on their homepage and compensates with having an extensive ATM network of their own.
Why is Chime free?
Chime is free because that’s one of their hooks to lure in customers. They also earn money in other ways, as we already explained above. And lastly, the founder and CEO, Chris Britt, was working on helping the underbanked part of society receive and set up their first bank account at GreenDot, where he was an executive. That’s where he noticed how many people need a financial product like Chime.
Can I withdraw $1000 from Chime?
You can’t. You can only withdraw up to $500 per day from an ATM. you can however use your card how many times you like in a day. Over-the-counter and cash backs at point-of-sale are also limited to $500. But, you can spend up to $2,500 per day with your card.
Can I increase my Chime spending limits?
There’s no way to increase your Chime spending or withdrawing limits at the moment. The company hasn’t announced any future plans to do so as well.
What is Chime’s SpotMe?
Chime’s SpotMe gives you the ability to go into overdraft from $20-$200 without paying overdraft fees. You have to enroll in the SpotMe program. You can do so by having a monthly qualifying direct deposit of $200 or more. SpotMe limit starts at $20 and can be increased up to $200 based on factors such as account history and activity.
How can I withdraw money from my Chime account without my card?
You can’t withdraw money from Chime without your card at the moment. There are a few workarounds though. You can read more about them in our article.
Can you have two Chime accounts?
There’s no option yet to open a secondary Chime account or even a joint account with your partner or friend. The company is saying that they’re actively working on this feature though.