The June 2025 IPO of Chime, the biggest American digital bank, was a big deal. The San Francisco-based company priced its market debut at US$27 per share above the expected range, raising US$700 million at a valuation of US$11.6 billion. Chime’s arrival in public markets was long anticipated and helped thaw an erstwhile frozen fintech IPO pipeline.
Yet even with the strong IPO performance, the digital lender has been fighting an uphill battle for several years. Founded in 2012, it was an early mover in the mammoth VC fintech funding cycle that lasted roughly a decade. Despite being far from profitability after almost a decade in operation, the San Francisco-based company achieved a US$25 billion valuation in 2021 at the height of the low-interest rate-fueled tech bubble. It is no surprise that such an inflated number did not stand up to investor scrutiny in public markets and Chime had to settle for an IPO valuation well below what private markets assessed in 2021.
When we consider that both Tiger Global Management and SoftBank, VCs known for poor investment decisions at the height of the tech bubble, were key investors in Chime’s US$750 million Series E funding round in 2021, we can see how the U.S. digital bank could have been dramatically overvalued.
The online lender relies on interchange fees for its core business, offering no-fee banking services, debit cards, and early paycheck access. It has been successful tapping into a market where there has historically been limited competition given fragmentation, regulatory barriers and hesitancy among American consumers to switch banks. With 22 million customers, Chime exceeds the size of several other U.S. online banks such as SoFi, Dave, and MoneyLion, according to a 2024 Cornerstone Advisors survey.
While many digital banks talk about catering to underserved markets more than actually doing so, this one is different. Goodwater Capital notes that “Chime is the largest neobank in the U.S. for consumers that are low income, low credit score, living paycheck to paycheck, and/or financially underserved.” That market is potentially as large as 130 million adults.
In recent years, competition for this demographic has intensified, especially in short-term lending. At the same time, Chime’s customers show fleeting loyalty and are not as profitable as those at banks that cater to more affluent consumers. “As the company moves to higher ARPU products, they need to build new capabilities (e.g. loan underwriting) that competitors have mastered,” Goodwater says.
The company’s third-quarter results reflect both its successes and the challenges it is facing. Revenue grew a brisk 29% to US$544 million, surpassing sales guidance, while its active member base grew 21% to 9.1 million. Chime still lost US$55 million in the September quarter, but posted a significant improvement in adjusted EBITDA of $29 million. The company’s management says that its new Chime Card rollout and the migration to its proprietary ChimeCore platform have been successful.
We share investors’ concerns about Chime’s heavy reliance on interchange fees, which account for about 72% of revenue and are paid by merchants when customers use their Chime debit or credit cards. The company’s model, and that of its bank partners, is built on a regulatory exemption from the Durbin Amendment for banks under a certain asset threshold. This allows them to earn higher interchange fees than large, regulated banks. The model is inherently risky because Chime is betting that it can continue to enjoy a regulatory exemption that may not last. The digital lender is much less diversified than traditional banks, which have revenue streams from lending, wealth management, and other fee-based services.
Ron Shevlin, chief research officer at Cornerstone Advisors, said this of Chime’s business model in a LinkedIn post: “Betting your business on interchange is foolish. And I don’t think Chime disputes that.”