Introduction
Chime is an example of a neobank. A neobank is a form of a digital bank that has no branches. It is operated entirely online discarding the traditional methods of banking that include physical branch networks. These types of banks are alternatives for financial institutions that provide their customers with a cheaper alternative to traditional forms of banking. These kinds of banks have a completely different model of operation when compared to offline banking. The Most significant and noticeable difference between the two forms of banking is that neobank don’t have branches but regular banks do have branches in different places. The Chime bank does not operate any physically worked institution for performing its tasks. Chime was formed and founded in 2013, with the collaboration of Chris Britt and Ryan King who are the present CEO and CFO of chime respectively. Let us know more about “How does chime make money?”.
Neobanks differ from online banking or digital banks in a way that, digital banks are only online subsidiaries of regular banks. On the other hand, neobanks are solely online, independent of any branches and discarding the procedure of the traditional banks. In such banks, every single procedure including opening or closing of bank account, transactions, withdrawal or deposition, etc is all performed through online modes only. Even registration of new candidates is done online, and authentication and the process of identification are done online through video conferencing. A few examples of neobanks include financial institutions such as Open, PayZello, Niyo Solutions, InstaDApp and many more from all over the world. Although Chime comes under the rules and procedures of a neobank, it claims itself to be a financial technology business or company and not a bank. Chime is an American technical as well as a financial company. Chime and other examples offer neobanking are positive steps that are taken towards a digital world.
At first, chime served as an extension of any person's already existing bank account. People could make free of cost payments or retrieve the money through debit cards with the help of chime.
In addition to Chime’s ability to work online and stream the app provides its customers with major advantages that include eliminating hidden charge, eliminating hidden fees as well as completely online banking process from opening to closing of the account. It is easy to use and consumes very little time, data and memory.
Advantages And Disadvantages Of Chime
Several advantages of chime over any other form of a bank may include:-
• It charges no monthly fees as well as no overdraft fees- Since, the the motive of Chime is to get rid of traditional banking methods, the company does not charge any kind of additional fees during a year.
Chime provides its customers with fee-,free services through a well-known designed app.
• Good ratings of the Chime App- It is rated approximately 4.8 on iOS and around4.6 on Android. In addition to the ratings, the app is well designed which makes the transactions, deposits, details of past transactions and much more easy and handier for all.
• Early access to direct deposits- Through chime, it is easier to deposit and withdraw online by using the app. It takes competitively very little time and is easiest to use.
• Large ATM network – Through, chime it is possible to withdraw money using customer’s debit card from over 38,000+ ATMs of anyplace and to at zero cost.
A few disadvantages of Chime are
• No physical locations- There are no such institutions for Chime that provides offline or on-door services to the customers. This platform is operated completely online through various internet service providers in all places of North America.
• It does not allow any joint accounts- It is not possible to have a joint account with your spouse or husband or wife in Chime till now.
•No loans, CDs or money markets- One Most significant features of the traditional banking system were loans and money markets. It was like a banking gift to its customers. Although, in Chime, there is no known procedure for loans. The system of money markets is missing as well.
Chime’s collaboration with Visa has benefited the users as it allows its customers an easy way or keeps an eye on their accounts. It is easier to check the deposited and savings accounts. Also while using Chime's debit card, the customer gets revenue that he receives directly from taking a cut in Visa transaction fees. The twinning of Chime and Visa have also provided its users with an outstanding feature of requesting a paycheck.
Ways by which chime as a neobanks make money
Chime solely focuses on operating and expanding its consumer products also it does not offer any business account at present.
There are various ways in which Chime makes many, it includes ATM charges, transaction fees, overdraft fees, international fees and non-sufficient funds that the NSF fees and also account maintenance. Although, the main ways that are followed by Chime to make money include following- we
•Chime makes money Via interchange fee
Interchange fees is a kind of transaction fees that are paid to the bank or any other the authorised institution that has initiated the transaction of money from one device to another. This is a common term that is used in the payment and card industry to describe the transaction of money between the banks and the cardholder. This fee is required to be paid by the customer every time transaction takes place through credit or debit card. The fees are to be paid so that the bank can cover the bad debt costs and also to cover the handling cost. This cost is to be paid to the bank that has issued the card to the customer. Moreover, the retailers also pay interchange fees whenever a customer uses a credit or debit card during a sales transaction. These rates have already been set by the credit cards companies and remain the same for all the cardholders irrespective of the place they belong to. The interchange fee as set by chime is in general equal to the percentage of the purchase in addition to the flat rate.
The illustration of interchange fees is as follows, for example, the credit card company has set the percentage to 2.00% and an additional flat rate is $0.15. So if a person has bought an item with an MRP of $ 100 and paid the cost through a debit card. The interchange cost that will be paid by the store will amount to $2.15. This amount of $ 2.15 goes to the bank as an interchange fees. A high amount of revenue of Chime is earned through the fees it has charged to the business firms and companies as well as banks and credit card companies. Visa has levied the charge of 1.5% interchange fee on every the transaction that has been made through a credit or a debit card in any institution such as the mall, shop, store etc.
•Chime makes money with the help of Interest earned on cash
It can be understood through an illustration when a person deposits some amount of money into his savings account, Chime or the bank pays interest in a form of an incentive that allows us to park our cash in that account. It is because to make loans, a bank needs and uses its customer’s money. Chime or any other bank around the world generally makes money by lending money to borrowers at high and they get profited when the borrower pays back the money with actual money and the money gained through interest. In addition to this, Chime also uses different measures such as investment banking, wealth management and any other alternative financial services to earn profits. Interest income is the most primary way to make money that is used by Chime and all the forms of online as well as offline banks, corporative banks and other card-holding institutions. When a person deposits his or her money in a bank, that depositor is compensated with a fixed amount rate of interest. This rate of interest also includes the security provided by the bank on depositor's money. The interest rate is calculated as an amount in terms of a percentage of the principal amount. Here, the principal amount means the amount that is borrowed or deposited by the customer. The banks that manage to provide their customers with low-interest rates attract more customers. Since it is easier for them to repay the loans they have taken. Chime is benefitted by depositors in the manner of low-interest rate and also it is benefitted by the lenders by charging them high-interest rates on every loan they take from the chime. The best situation in which chime is benefited is in such an economic environment in which the interest rates are continuously increasing. This is because in such a condition where interest rates are continuously increasing, chime, the banks and other institutions or companies can lock a fixed-term deposit on the lower interest rate for its customers, while still gaining profit. It is possible as many more customers will get attracted to the scheme and apply for loans for education, health, home, start-up, funding and the list goes on.
• Chime makes money through ATM fees
When A person withdraws money from an Automated Teller Machine (ATM) a certain amount of transaction money is cut and that amount of money goes to Chime. The cut from ATM is the same as the cut in transaction done through debit cards or credit cards by the consumer. An Automated Teller Machine is an electronic machine and a banking outlet, it allows the consumers to complete the process of transaction and withdrawal of money from the bank account using the debit card. In the United States most of the banks charge about $2.95 to $ 9.95 as the transaction fee per withdrawal. Chime charges about$ 2.50 to $8.75 as transaction fees on every withdrawal. It is a known fact that using an ATM highly reduces the transaction cost of that bank as well as for the neobanks. This Statement goes along with Chime too. Along with this, the fee charged by chime for serving the customers of other banks is also a rich source of revenue.
• Chime makes money through international fees
Foreign transaction fees is applied to the customers that tend to make transaction among two territorially different countries. Like an internal transaction, the fees of an international or foreign transaction is also in the form of a percentage. The foreign transaction fees are charged by the card holder's bank. For example, if a customer of America has bought a product from a company established in Germany, this transmission of money will cost the consumer a certain amount of transaction fee as the transaction that has taken place in this situation does not come under the home boundaries of Chime. Foreign or international transaction fees will also be charged by Chime if the product bought by the consumer is through an internal website but the website is made by a foreign seller. In such a situation the fees are the same as in the situation of international boundaries. Thus can be understood better through an illustration, such as if a person has bought an item or product from Amazon or Snapdeal but that product is been shipped by a Chinese seller, it will lead to some amount of international transaction fees. The fees are already determined by Chime and other online and offline banks. This percentage remains the same from all over the world. The percentage of transaction fee remains the same but the combination of countries keep on changing. It does not include the charges of import or export.
The Chime app allows its customers to create a checking as well as a savings account, it is possible because of Chime’s partnership with Visa. Chime also makes a bulk of money by taking out a portion of the transaction fees done by merchants or businessmen through Visa with the help
