The eye-popping $500 million that Chime raised in its latest funding round could be used for acquisitions that would allow the challenger bank to offer more products and services, according to its CEO.
It also would give the San Francisco fintech more firepower to better protect itself from the types of service outages it suffered two months ago, observers say.
Chime confirmed on Thursday evening through its social media channels a
The investment is the largest for a challenger bank this year, according to CB Insights’ data. Nubank in Brazil raised $400 million in July, and N26, a German company that is establishing itself in the U.S., raised $300 million in July.
CEO Chris Britt told
One observer suggested that Chime, and other neobanks flush with cash, might also take steps to bring certain services it now outsources in-house to prevent service interruptions.
While Britt in the past has indicated Chime would shy away from bringing some services in-house, a recent outage linked to its card processor could conceivably prompt Britt to rethink his position.
“The question remains, how does an emerging and maturing industry respond to the realities of technology failing, and do that in a sensitive, pro-consumer regulatory environment?,” said Ryan Gilbert, a partner at Propel Venture Partners, the investment arm of BBVA.
“You do that by ensuring you have sufficient alternatives to ensure continuity,” he said. “These companies have proven to be successful at customer acquisition and have raised significant funds and can use that money to ensure that when these outages happen, they’ll be able to continue to serve their customers.”
Chime’s customers lost access to services for close to 24 hours in October because of what its card processor, Galileo Financial, identified as an “operational incident."
Galileo in recent years has morphed into a company that also provides application programming interfaces for a variety of fintechs, including Chime and Varo Money.
Chime customers during the outage tweeted complaints about declined debit card transactions, the inability to withdraw cash at ATMs and the failure of the bank’s mobile app to deliver notifications about certain types of transactions.
The challenger bank also had an issue with restoring access to SpotMe, a Chime overdraft protection tool that allows eligible customers to freely overdraw their accounts by as much as $100 without penalty or declined purchase.
Britt recently told
"Obviously we’ve been spending a lot of time with our processing partner, and we’ve identified an approach to make sure that we minimize any risk of disruption going forward, so we feel very confident about the plan that our technology teams have developed," Britt told Fortune.
Chime did not respond to requests for comment about past service interruptions or the latest funding round.
The $500 million investment makes Chime the most valuable challenger bank in the U.S. at $5.8 billion. That’s nearly four times what it was valued at nine months ago after it raised $200 million.
DST Global led the latest funding round that also included investments from General Atlantic, Iconiq, Coatue, Dragoneer and Menlo Ventures, according to Forbes.
Britt told Forbes that Chime will use part of the funding to hire more personnel, and open an office in Chicago.
Chime’s customer base has grown rapidly since 2018, when it had about 1 million accounts. Today it has about $6.5 million.
A rival, Varo, is pursuing a banking charter, but Britt in the past has said that Chime has no interest in doing the same.
Colin Walsh, Varo’s CEO, told American Banker in a statement that Chime’s recent funding round is “good news for the industry as a whole, as it shows strong confidence in digital banking.”
But Walsh also took a jab at his rival, pointing out that Varo offers products and services, such as personal loans and a high-interest savings account, that Chime doesn’t.
“Chime is our No. 1 source for new customers, who often seek us out as they discover there are more robust banking options on the all-digital side,” Walsh said.
