Fintechs have expanded their financial services offerings to the point where many now resemble traditional financial institutions, but securing a U.S. bank charter has remained elusive for many.
Although some fintechs have successfully navigated the charter application process, including stablecoin issuer Circle, Chime is taking a different approach. The digital-first bank is set to acquire Stride Bank, N.A., a longtime sponsor bank for Chime, for $590 million.
The deal is expected to close in the first half of next year, when Stride will become a wholly owned subsidiary of Chime and be rebranded as Chime Bank, N.A. The deal will reportedly value Stride at roughly 1.5 its tangible book value, representing a significant investment for Chime as it brings its banking infrastructure in-house.
“It’s a logical move when you consider the economics,” said Ben Danner, Senior Debit Analyst at Javelin Strategy & Research. “This acquisition is about creating efficiencies through reducing partner fees and funding costs. At Chime’s scale, these fees add up to serious money, and they are projecting $100 million plus in net synergies. Why keep paying a partner when you can own them and grow the business with a national charter?”
A Flock of Fintechs
The continued appeal of a bank charter has spurred a growing number of fintechs to apply in recent months. Along with Circle, crypto firm Ripple, payments giant PayPal, and buy now, pay later provider Affirm have all applied to become U.S. national banks.
The trend underscores the continued importance of the U.S. banking charter. Beyond the regulatory benefits, a charter can provide a level of credibility and control over banking operations that can be difficult for fintechs to achieve through partnerships alone. It can also give financial services companies greater latitude as they seek to scale their operations in the U.S.
Building Better Plumbing
Chime’s decision to pursue ownership of a bank rather than apply for a charter itself is notable, but it also fits with the company’s evolution beyond its original neobank model.
The firm built its brand around bringing conventional banking into a streamlined digital interface. Since then, it has continued to expand beyond its product offering and is even considering adding stablecoin support to its app.
As Chime’s ambitions have grown, so too has the importance of the underlying infrastructure supporting its banking services. Acquiring Stride would give the company greater control over the infrastructure while providing a foundation for future expansion.
“Chime will have more control over its lending operations with the bank charter, allowing them to set their own underwriting and keep the full earnings on the portfolio,” Danner said. “The move to stay under the $10 billion asset threshold is important for Chime as it is a lighter regulatory burden. Otherwise things like Durbin can take over and take a bite out of their interchange.”
