US bank challenger Chime, now valued at $ 5.8 billion, enters the credit card market with the launch today of a new card designed to help consumers build their credit history through daily transactions. With the Visa Chime Credit Builder credit card, users can control how much they want to spend by transferring funds from an “expense account” to their secure Credit Builder account, and can then charge that amount wherever Visa is accepted.
This makes the card more like a debit card because it is tied to the amount of money in a user’s bank account – rather than a traditional credit card that can allow for excessive spending.
Chime wanted to develop a new type of credit card experience due to the growing popularity of debit cards in the U.S. In 2018, the U.S. Federal Reserve said debit cards accounted for 50% of all non-card transactions cash, the company said. Young consumers in particular prefer debit to credit, Chime had said in the past. In a 2015 survey, Chime found that 67% of millennials preferred debit cards, which they said were safer and less likely to go into debt.
However, relying only on debit cards means that young consumers are not building their credit history – a decision that will become important when it comes to financing a larger purchase, such as a home.
“Americans have adopted debit cards for better control, but this limits their ability to establish or build their credit score,” said Chime CEO Chris Britt in a launch announcement. “We created Credit Builder to help our members stay in control and build their credit securely with their daily purchases,” he said.
Chime’s credit card aims to straddle the two worlds, debit and credit, working to establish good credit while preventing users from spending too much.
To make it work, Chime users first add money to their Chime spending account, and then bill their daily purchases – such as gas, groceries, or subscriptions – using the credit card. credit. At the end of the month, Chime’s Safer Credit Builder function will automatically reimburse the credit card balance of the secure account on time. It then reports payment by credit card to major credit bureaus, including TransUnion, Experian and Equifax.
The card also has the appeal of a debit card for its lack of fees. It does not include annual fees, interest or minimum security deposits, like most secure credit cards with which it competes.
The company has been thinking for some time about how to better meet the credit needs of its users. In the fall of 2018, Chime acquired the Pinch Credit Improvement Service, which was aimed at helping young adults get better credit. The start-up was best known for a service called PinchRent, which reported rent payments on time to credit bureaus to help its users improve their credit scores.
Chime says he learned from Pinch and drew on the team’s expertise in creating Credit Builder.
Chime has been testing the beta credit generator since June 2019 and the service has grown to more than 200,000 registrants. During the test period, Credit Builder helped users increase their credit score by an average of 30 points, says Chime, citing data from Transunion. It also helped 95% of members with no credit history to establish a credit rating for the first time. Anecdotal reports from its users, like these discussions on Reddit, also seem to support Chime’s claims about the card’s ability to improve their credit.
Today, Chime is opening Credit Builder’s waiting list access to all of its Chime banking customers and will be expanding the service to more members every week over the summer.
Chime’s mobile banking app is now one of many challenger banks in the United States to respond to the transition from a young generation of large banks with physical branches to modern, mobile and digital banking experiences. Carillon, however, is not a bank per se. Instead, banking services are provided by The Bancorp Bank or Stride Bank, NA. The Credit Builder card is also issued by Stride Bank.
Like many of its rivals, Chime offers free chequing accounts with no overdraft fees, early access to settlement checks by direct deposit, automatic savings and more. But Chime has surpassed much of its competition, after raising a $ 500 million round in late 2019 to assess its business at $ 5.8 billion – a significant increase from the valuation of $ 1.5 billion. it had earlier in 2019. It is now growing at 4x over 12 months. , the company says, and reached 8 million FDIC-insured accounts in February 2020 according to Bloomberg.
The launch of Chime Credit Builder follows yesterday’s Apple Path “Path” program, which also helps solve the problem of young people who cannot qualify for credit. In this case, the program alerts users to ways to improve their credit standing, such as making payments on secure cards or resolving overdue balances. This program is more educational in nature, however, while the Chime Credit Generator is concerned with the actual strengthening of credit through transactions and payments.
Correction, 6/30/20, 3 p.m. and: The account that users spend with their credit card is called the “secure credit generator account”. We have updated the article with the correct name.
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