Chime IPO Hot Take

Hey, GonzoBankers. Tony DeSanctis back with another hot take.

So Chime has submitted their S-1 to go public. Lots of information in there. Our friend Ron Shevlin had some really cool observations, a couple things that he brought up in terms of their competitive position.

So they’re spending $500 million a year in marketing, which is roughly 10 times, maybe 20 times as much as most financial institutions. A similar-sized financial institution would have to be a $500 billion institution, so whatever that math is.

The second thing is the model primarily for Chime today. About 76% of their income is interchange. That’s unsustainable, especially as they grow and especially if they decide they want to become their own bank because of the $10 billion limit.

And then the last one, which I thought was really interesting that Ron brought up, is, is there a generational concern? Because Chime seems to be better adopted in the millennial generation than it is in Gen Z, and we know a lot of the growth is going to come from Gen Z.

So some really good stuff there. We’ll tag his LinkedIn post in the comments here when we put this out.

But I wanted to touch on a couple of other topics that I thought were super interesting and good takeaways for us as financial institutions to think about.

So Chime has 8.6 million active customers, per the S-1, doing $121 billion in spend, representing 54 transactions a month.

Now, Ron talked a little bit about the fact that a lot of these clients, because they’re historically unbanked or underbanked, may only have Chime as a payment option. But I think it’s important for us to recognize that Chime has found a way to make debit, almost exclusively on interchange, profitable.

And so if you think about 54 transactions against our Cornerstone benchmark at about 30, you think about the profitability of about $250 overall, which is probably about $200 in interchange, compared to our benchmark of $140.

I think it really demonstrates that there is an opportunity for us as financial institutions to be more thoughtful and deliberate about how we market our debit product.

Because with the right amount of energy and resources, ideally not 10x or 20x the marketing budget, but certainly more marketing budget than we use today, you have the potential to probably grow that debit card interchange number closer to the Chime numbers.

So let me know what you think in the comments, but definitely think there are some takeaways for us as financial institutions on spending time and energy on debit to really grow those numbers, interchange and transactions specifically.