(Bloomberg) — Chime Financial started spotting customers if they went overdrawn in 2018, as U.S. banks clung to revenue from overdraft fees. Now, the startup’s co-founder is predicting an end to the charges altogether, as the likes of Bank of America Corp. and Wells Fargo & Co. ease up on the penalties.
“All of these are steps toward the inevitable, which is that, if not all, most of these fees will go away,” said Chris Britt, who is also chief executive officer of the company that scored a $25 billion valuation last year. “I think they’re just sort of taking baby steps to get there.”
Banks charging the controversial fees have come under increasing pressure in recent years, with Democratic Senator Elizabeth Warren saying in December they “snatch billions from struggling families” particularly in the pandemic. Fintech companies like Chime have wooed consumers with fee-free accounts, and the startup has so far covered $7 billion for consumers under its fee-free overdraft program, SpotMe.
Bank of America and Wells Fargo last week promised to eliminate charges for non-sufficient funds in accounts and tweaked their overdraft facilities. After being labeled the “star of the overdraft show” by Warren, Jamie Dimon’s JPMorgan Chase & Co. rejigged its policy while other banks made adjustments, with Ally Financial Inc. ending them completely. The industry’s efforts are better, but will have to change even more, Britt said.
“They’re friendlier but they’re not that friendly,” he said.
Banks during 2019 generated nearly $15.5 billion in revenue from overdraft and non-sufficient funds policies, Consumer Financial Protection Bureau data show. Chime argues the fees are a huge pain point for consumers just needing short-term liquidity, and its SpotMe program covers account holders for up to $200 of an overdraft.
Fintech Influence
The move to eliminate fees underscores the expanding influence of financial technology companies on the largest U.S. banks. JPMorgan’s Chief Financial Officer Jeremy Barnum said last year that the firm was taking fintech disruptions “quite seriously.”
Chime makes money from interchange fees, or the charges merchants pay banks each time a consumer swipes a card. It partners with lenders like Bancorp Bank and Stride Bank to offer the regulated part of the banking business. For now, that model suits the startup and benefits partner firms: Chime earns the interchange fees and helps the banks generate more deposits, Britt said.
“We think we play a valuable role in creating a more competitive market in a market that’s just increasingly dominated by a small handful,” he said.
Chime wouldn’t rule out applying for a banking charter or buying a lender of its own if the startup starts to move into more long-term lending-based businesses eventually. The company is interested in more short-term lending products, in ways similar to the Buy Now, Pay Later models that have gained popularity. Chime already has a vast array of consumers and data on their financial habits, making it easier to suss out good and bad risks for short-term lending opportunities, he said.
Ultimately, Chime is working toward becoming a public company in terms of its controls and processes. The business has made progress but isn’t seeking an initial public offering in the short term, given volatility and a desire to focus on product launches, Britt said. Another fintech, Acorns Grow Inc., and Pioneer Merger Corp. canceled their $2.2 billion blank-check deal to take the investing app public on Tuesday due to “market conditions.”
“We’re certainly at a point right now where we could be a public company,” he said. “We’re more focused on launching some new products and getting more engagement across a broader product suite and I think we want to make a little bit more progress on that front before we consider tapping the public markets.”
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