The rise of neobanks has begun to reshape the financial services landscape — with San Francisco-based Chime Financial emerging as a leader. Chime has built a strong reputation by addressing the unmet needs of everyday consumers, offering low-cost, user-friendly products that resonate with those often underserved by traditional banks.
Now, Chime is planning on hitting the public markets with its S1 filing — following in the footsteps of fintech peer eToro, which priced above expectations in mid-May. With a brand awareness rivaling that of the largest traditional banks, Chime has established itself as a trusted alternative, particularly among younger and middle-income consumers.
Below, we leverage expert transcripts and real-time market data from the AlphaSense platform to evaluate Chime and the competitive forces shaping the neobanking market.
Neobanks: Banking for Everyone
Chime has established itself as the leader in the U.S. neobanking space with 22 million customers. The company targets underbanked “everyday” consumers with annual household incomes between $30K and $100K through partnerships with FDIC-insured banks such as Bancorp and Stride Bank.
We created Chime to help everyday people make progress in their financial lives. For too long, millions of Americans, including the 75% of the adult population that earn up to $100,000 annually, have struggled with bank relationships that are not always aligned with their best interests. So we set out to create a new approach, built on a foundation of trust rather than fine print and punitive fees. Through our direct relationships with FDIC-insured bank partners, we deliver easy-to-use products that address the most critical financial needs of everyday people — spending, saving, accessing liquidity, and building credit, all while avoiding punitive fees.”
This go-to-market strategy may prove fruitful. AlphaSense experts point out that younger and lower-income demographics in particular are drawn to the unique offerings that neobanks provide. Cost is one major pain point for this demographic. Those living paycheck to paycheck often rack up overdraft fees at traditional banks. Perpetual overdrafters run the risk of losing their traditional bank accounts — and can effectively be blackballed by larger commercial banks due to their higher risk profile.
By contrast, neobanks do not utilize overdraft fees. In fact, Chime touts targeted offerings such as SpotMe, which allows users to carry a negative balance and retain purchasing power under set risk parameters. Neobanks also aim to improve financial literacy and creditworthiness. Chime offers a prepaid Credit Builder Credit Card for this purpose, making it easier for cardholders to build their credit scores. This card also allows cardholders to access up to $500 of their payroll before payday, improving liquidity.
Chime’s Competitive Advantage: Targeted Products
Addressing common concerns of the underbanked has unlocked a sizable growth opportunity for Chime, according to experts and analysts. Chime management estimates that its serviceable addressable market offers up to an $86 billion annual revenue opportunity, as it brings digital debit, credit, lending, and checking account services to those earning under $100k per year.
Chime’s robust suite of low- or no-cost products has been a key catalyst for adoption among lower-income consumers. The company is seen as eschewing profitability in favor of scale — a factor that sets it apart from competitors. In the words of a former business lead at Sofi, “I actually just don’t know why anyone would come to my business versus going to Chime where they’re actually offering it all for free.” That same expert suggests Chime’s strategy enables it to compete with payday lenders and even small credit unions and lenders that may be out of reach for other neobanks.
Technology is another advantage attributed to neobanks. One analyst expects Chime in particular to benefit from rising demand for mobile-first financial services. Consumers increasingly consider robust digital services as core to their banking experience. The Chime platform processes 50 billion data events monthly, including app interactions, transactions, and social graph information. Chime uses this data for offering personalized features like tailored limits and rewards.
Chime is seen as occupying a sweet spot in the financial services market. Its success comes largely from filling the gap left by traditional banks that cater to higher-net-worth clientele. Chime’s understanding of its market is an important factor in its ability to acquire and retain customers — a selling point not lost on experts.
Chime has been successful in terms of attracting customers. … I believe there’s just huge momentum from its product because of the product market fit. It was able to get attracting the initial lower income segment that had been for a long time ignored or basically deprioritized by traditional financial institutions.
“I think there’s also a lot of distrust or dissatisfaction with big banks because of the press coverage that they continue to receive about ridiculous fees that are charged for overdraft or for example when trying to cover fraud-related incidents.”
How Sustainable Is Chime’s Strategy?
Chime’s strategic decision to target and serve the underbanked has paved the way for its strong growth to date. But is this strategy sustainable? Some experts claim Chime’s churn rate could grind higher as younger customers grow out of the target income bracket. Even amid broad optimism on Chime’s prospects for success, there is agreement among experts that the company needs to update its business model to unlock further growth.
According to the company’s S1 filing, Chime earns the substantial majority of its revenue through interchange-based fees from debit and credit card transactions. Some experts believe this interchange model is unfeasible as a long-term solution due to the razor-thin margins it offers. Additionally, Chime has opted to keep its core services free to attract more subscribers. This puts even more onus on the company to uncover alternative revenue streams.
Also, Chime holds customer deposits at FDIC-insured partner banks, such as Bancorp and Stride. While this does not present a direct risk for customers, regulators may change the rules, putting a bank partner in jeopardy.
What’s Next for Chime?
Chime has said it wants to grow its customer base and expand beyond its current target demographic — a sign that management is actively seeking to mitigate concerns over its business model. Yet in order to scale into a true mass market product, Chime will need to expand its offerings, experts say.
Entering the lending world is one path that experts believe could pay dividends. Acquiring a banking license would enable Chime to compete in the higher-margin lending business. Doing so would also serve as a competitive advantage, considering that among Chime’s neobanking peers, only SoFi and Varo currently have a banking license.
I think [the interchange model is] a risky place to be, which they’ve recognized and that’s why they started getting their lending licenses to figure out how they can start lending more, and also specifically calling out that they’re trying to become more mass market so that they can slowly start acquiring different types of customer that they can actually earn new sources of revenue on.”
One dark-horse growth catalyst: Chime’s robust trove of user data. The same data that Chime uses to build its targeted products and services could also be leveraged to drive growth. One expert draws a parallel to social media companies that opt for user growth over profitability before eventually turning their data stores into additional revenue.
Salt views them as employees whereas Chime views them as members, subscribers, if you will. That’s all they cared about. That’s only significant because why? What does social media do with their subscribers? They farm their data and the knowledge base that they’re getting from the users of that system.
“That’s where I think ultimately they will probably start monetizing stuff.”
— Former Strategic Business Development at Salt Labs, January 2025 Call
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Director of Research, Tech, Media and Telecom
Michelle Brophy serves as the Director of Research, Tech, Media and Telecom at AlphaSense. Prior to joining AlphaSense, Michelle spent 3 years as the Strategist for TMT at Guidepoint Insights. Prior to this, Michelle spent 18 years on the buy side, in both portfolio manager and senior equity analyst roles, at Hilltop Park Capital and Kingdon Capital Management. Michelle resides in New York City.
Read all posts written by Michelle Brophy
