Is Chime Worth More than Discover, Fifth Third?
Is Chime Worth More than Discover, Fifth Third?
Event: Clubhouse w/Affirm & Quartz, Revolut Quits Canada, Goldman Wants JetBlue Credit Card Biz
Hey all, Jason here.
OK, I’ve been teasing a special announcement on Twitter, so here goes!
I’m pleased to announce I’ll be joining John Detrixhe, Senior Reporter at Quartz, and Chung-Man Tam, SVP of Product Development at Affirm, on Clubhouse to discuss “Does ‘buy now, pay later’ make business better?” The chat will take place this Thursday, Mar 25, at 11:00am US/ET.
Add the event to your calendar or follow club Quartz to get alerted when the session begins. Not on Clubhouse yet? Ping me — I have five invites if you need one!
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Chime at $30 Billion
If you’re in fintech or banking, there’s about zero chance you missed the news last week that Chime is reportedly evaluating options for going public, whether IPO, direct listing, or SPAC — at a valuation of $30 billion.
That valuation would be more than double the $14.5 billion valuation of its Series F fundraise announced just six months ago (and an astounding 20x its valuation 24 months ago.) Lex Sokolin did a great analysis when the Series F valuation was announced that’s worth a read.
A $30 billion valuation would make Chime a top 20 US bank by market cap, ahead of credit card-focused Discover and Synchrony and regional powerhouse Fifth Third — all this without actually being a bank — instead, it partners with Bancorp Bank and Stride Bank to hold insured deposits and issue debit cards.
In an interview with CNBC last year, co-founder Chris Britt used a familiar conceit to justify the outsized valuation (emphasis added):
“We’re more like a consumer software company than a bank,” Britt said. “It’s more a transaction-based, processing-based business model that is highly predictable, highly recurring and highly profitable.”
If that line sounds familiar, it’s because plenty of “fintech 1.0” companies like Lending Club and OnDeck tried to make similar arguments to justify their multiples — only to see their valuations get a reality check once they reached public markets.
For current Chime investors, it’s probably a matter of opportunistic timing. The pandemic and multiple rounds of stimulus payments have driven account openings and growing deposits — trends that may slow or reverse as stimulus measures fade.
Without its own bank charter, those growing deposits are of limited utility to Chime itself — its revenue is largely derived from interchange on debit transactions. With a customer base that is largely lower income / income volatile, continuing to grow interchange revenue may be a challenge.
Further, there are threats on the horizon, with big banks continuing to complain about an “unfair playing field,” including the Durbin Amendment, which is key to Chime’s business model, and renewed pushes from progressive Democrats for some type of universal free bank accounts, which, if successful, could undermine the appeal of neobanks like Chime.
OppLoans Under CFPB Investigation
OppLoans (OppFi), which recently announced a SPAC deal to go public, revealed in a securities filing that it has received a civil investigative demand (CID) from the CFPB regarding potential violations of the Military Lending Act (MLA). The MLA prohibits lenders from charging servicemembers or their families APRs above 36%, among other protections.
OppLoans may have been included as part of a broader sweep of lenders that resulted in fintech lender LendUp settling a lawsuit from the CFPB by paying a $1.25 million fine (disclosure: I was an early employee of LendUp and own a small amount of equity in the company.)
I reached out to ask Jared Kaplan, CEO of OppLoans, about the investigation, and he provided this official statement:
“As a participant in a regulated industry, OppFi receives inquiries from regulators in the ordinary course of business and, as indicated, has been and intends to cooperate with the CFPB in what we believe is an ordinary course inquiry. We are confident in our business practices and look forward to resolving the matter with the CFPB.”
Revolut Calls it Quits in Canada… Is A Retreat from the US Next?
Revolut, which began work on an expansion to Canada in 2019, has called it quits without even officially launching its offering out of beta.
While Revolut has been aggressively expanding its geographic footprint, as recently as 2019, 99.7% of its revenue was derived from the UK, where it operates under an e-money license and has faced regulatory scrutiny in the past for compliance lapses.
The London-based fintech launched in the US market a year ago through a partnership with Metropolitan Commercial Bank. Rumors popped up in October that Revolut planned to apply for a state banking license in California (which doesn’t make doesn’t make much sense, vs. friendlier states like Utah), but no paperwork has yet been filed.
The process of obtaining a de novo charter in the US can be notoriously long and expensive — Varo reportedly spent $100 million over three years to win approval for its national charter.
Recent survey research from Ron Shevlin at Cornerstone Advisors puts Revolut at just 264,000 US accounts — not nothing, but a small fraction of the 12 million+ accounts Chime boasts.
Looking at Google Trends data, Revolut is a virutal non-entity in the US compared to Chime:
Note Google Trends data measures search term volume, so is also influenced by company news and announcements, and thus is an approximation of consumer interest.
While the US is a huge market, it has numerous homegrown challenger banks with comparable or better features and a significant headstart to Revolut’s US offering — making me wonder if Revolut has the stomach (and capital) to mount a serious offensive here.
Goldman Going After JetBlue Co-Brand Card
Remember back when Goldman enthusiastically talked about “helping Americans” get out of credit card debt…? Last week, the Wall Street Journal broke the news that Goldman is pursuing JetBlue’s co-brand credit card business, currently with Barclays.
The JetBlue co-brand play shouldn’t come as a surprise for a number of reasons:
Goldman has made clear its multi-prong strategy of growing consumer products: its own brand (Marcus), white label (Apple Card and GM), and its nascent Banking-as-a-Service/platform strategy.
Goldman already has a partnership with JetBlue via its “MarcusPay” offering, a BNPL-type product offering 12-18 month loans for JetBlue flights and vacation packages.
The takeaway? Despite losing partnership head Dave Stark to Walmart, expect Goldman to continue to bid aggressively for this type of co-brand business.
Having already built the core credit card infrastructure to launch the Apple Card, it makes sense to leverage it to the fullest extent possible.
And while the Apple deal includes strong privacy protections that make it difficult for Goldman to cross-sell to Apple Card customers, contracts with GM, JetBlue, and other potential partners may be more flexible — possibly presenting an opportunity to cross sell Marcus products like online savings or investing.
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