U.S. challenger bank Chime launches Credit Builder, a credit card that works more like debit – ProWellTech
US challenge bank Chime, now valued at $ 5.8 billion, is entering the credit card market with today’s launch 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 to a “Expense Account” and can therefore charge up to this amount wherever Visa is accepted.
This makes the card look more like a debit card, as it is tied to the amount of money in a user’s bank account, rather than a traditional credit card which can allow for overspending.
Chime wanted to develop a new type of credit card experience due to the growing popularity of debit cards in the United States. In 2018, the U.S. Federal Reserve said debit cards account for 50% of all non-cash transactions, the company noted. And younger consumers in particular prefer debt over credit, Chime had said in the past. In a 2015 survey, Chime found that 67% of millennials preferred debit cards, which they felt were safer and less likely to borrow them.
However, relying solely on debit cards means that younger consumers are not accumulating their credit history – a decision that will matter when it comes time to fund a larger purchase, such as a home.
“Americans have embraced debit cards for greater control, but this limits their ability to establish or build their credit score,” said Chris Britt, CEO of Chime, in a launch announcement. “We created Credit Builder to help our members stay in control and securely build their credit with their daily purchases,” he said.
Chime’s credit card aims to ride both worlds, debt and credit, working to establish good credit while avoiding users to spend too much.
To make this work, Chime users first add money to their Chime Spending Account and then charge their daily purchases – such as gas, groceries or subscriptions – using their credit card. At the end of the month, Chime’s Safer Credit Builder feature will automatically pay the credit card balance from the protected account on time. He then reports the credit card payment to the major credit bureaus, including TransUnion, Experian and Equifax.
The card also has the charm of a debit card because of its lack of commissions. It does not include an annual fee, interest or a minimum security deposit, like many of the secured credit cards it competes with.
For some time now, the company has been thinking about how to better address its users’ credit building needs. In autumn 2018, Chime acquired the Pinch Credit Score Improvement Service, which had focused on helping young adults build better credit. The startup was known for a service called PinchRent, which reported punctual rent payments to credit bureaus to help its users increase credit scores.
Chime claims to have learned from Pinch and to leverage the team’s skills in creating Credit Builder.
Chime has been testing Credit Builder beta since June 2019 and the service has grown to over 200,000 subscribers. During the trial period, Credit Builder helped users increase their credit score by an average of 30 points, says Chime, citing data from Transunion. In addition, it helped 95% of members with no credit history establish a credit score for the first time. Anecdotal reports from its users, such as these discussions on Reddit, also seem to support Chime’s statements about the card’s ability to improve their credit.
Today, Chime is opening access to the waiting list for Credit Builder to all of its Chime banking customers and will be distributing the service to multiple members every week during the summer.
Chime’s mobile banking app is now one of many challenging banks in the United States with the goal of tackling the transition of a younger generation from large banks with physical branches to modern, mobile and digital banking experiences. The carillon, however, is not a bank itself. Instead, the banking services provided by The Bancorp Bank or Stride Bank, NA, Members FDIC. The Credit Builder card is also issued by Stride Bank.
Like many of its competitors, Chime offers free checking accounts, no overdraft fees, early access to direct deposit payslips, automatic savings and more. But Chime outperformed much of its competition, having raised a $ 500 million round at the end of 2019 to evaluate its business at $ 5.8 billion – a sizable increase from the $ 1.5 billion valuation it had in the 2019. It is now growing at 4x year on year, says the company, and has reached 8 million FDIC insured accounts in February 2020 according to Bloomberg.
The launch of Chime’s Credit Builder follows yesterday’s debut of the Apple Card’s “Path” program, which also helps address the problem of young people who are unable to guarantee credit quality. In its case, the program warns users of how to improve their creditworthiness, how to make payments on guaranteed cards or resolve overdue balances. This program, however, has a more educational nature, while Chime’s Credit Builder is about building real credits through transactions and payments.