Chime moves further up market with prime offering

• Key insights: Chime is rolling out Chime Prime, a new membership service that rewards customers for making Chime their primary bank account. 
• What's at stake: Fintechs such as Chime, SoFi, Robinhood, Block and others are standing up new features designed to garner more deposits. 
• Forward look: Chime Prime is a "differentiated offering" when compared to incumbent retail banks, but the neobank faces stiff competition from other fintechs, according to Keybanc analysts.  

Neobank Chime is hoping to attract a new demographic with its latest membership service, Chime Prime. 

The neobank's release comes as banks fight to defend their deposits from on multiple fronts, including fintechs, cryptocurrency companies and stablecoin issuers.

"It's definitely a move up market, but it's not like they're going after SoFi clients [that make] $150,000, $200,000 [per year]," Tony DeSanctis, a senior director at Cornerstone Advisors, told American Banker. "It's very much the same population that Cash App is going after. They're going after that sort of sub-$75,000 annual income population to become their primary banking relationship." 

Consumers who have at least $3,000 in monthly direct deposits –  or earners making at least $36,000 per year after taxes — will receive additional benefits, including 5% cash back on its secured credit card Chime Card, 3.75% annual percentage yield on savings, overdraft protection, free access to its small dollar lending product Instant Loans and earned wage access product MyPay, and other travel and lifestyle perks. 

"Chime was built to challenge the status quo and deliver a better banking experience for mainstream America," Mark Troughton, president at Chime, told American Banker in an email, noting Chime was an early adopter of no-fee banking, early pay, and expanded access to credit. "Chime Prime is an extension of that strategy. It ties premium rewards and perks to everyday banking activity, so when members make Chime their primary account, they receive more — more rewards, more savings, and more benefits — without fees or minimum balances." 

The offering should attract higher income members, which translates to higher average revenue per account, according to Keybanc analysts. 

"There's a lot of value to derive from higher-income consumer segments, which tend to over-index on share of spend and carry higher deposit balances," Keybanc said, noting that the Prime product was a "notable step up in value" from Chime Plus, its other membership service available to customers who have at least $200 per month in direct deposits. Chime Plus also got an upgrade with the launch of Chime Prime: a 50 basis point increase in cash back on a spending category when using the Chime Card, the company said. 

Incumbent retail banks have the most to lose as Chime looks to gain more market share, according to Keybanc analysts. But up-market customers also have more options for banking services – including from other neobanks – and tend to be better served than Chime's existing core member base

"For that reason, we'll be curious to hear data points on up-market customer acquisition costs," Keybanc said. 

Moving up market will also likely force Chime to at least consider getting more into lending,  DeSantis said, noting that Chime averages about 55 debit transactions per month on active accounts, which is about 30% to 40% better than the average bank or credit union.

"This is the challenge they're going to have going up market. How much of the 55 transactions  they get today is because none of those folks are credit worthy and they don't have an alternative payment?" DeSanctis said. 

Keybanc analysts also said that the move up market would likely force more product innovation at the neobank, which would likely come in the form of a revolving credit product.