US-based neobank Chime will no longer refer to itself as a bank after it agreed to a settlement with the California Department of Financial Protection and Innovation. The regulator took action against the US neobank in 2020 because it doesn’t have a state banking license. The settlement calls for Chime to add clarifications about its operations to its website and advertising by May 15. Moving forward, Chime will state that it is a fintech and that it partners with outside banks to provide its offerings.
Some of the neobank’s licensed competitors argue that their licensing helps bolster their reputations, which would also come with the ability to offer deposit products without needing to partner—or share revenues—with a sponsor bank. Green Dot CEO Dan Henry said in an earnings call that its ability to market itself as a “bank” means that it is a “legitimate financial institution,” while Varo CEO Colin Walsh said having a charter allows it to build trust with consumers.
Several banking challengers have recently obtained charters as they have expanded, taking different paths to get there.
Chime’s settlement may prompt more neobanks to look closer at getting charters as a trust-building move. For challengers willing to invest the time and capital, the ability to legally call themselves “banks” in marketing could help increase trust with prospective and current customers. This is a lucrative benefit, given that there is greater customer satisfaction among digital banking users with above-average digital trust in their banks than among those with below-average levels, Insider Intelligence found in a survey of US digital banking users, along with more frequent usage of online and mobile services. A greater proportion of customers with above-average digital trust levels also say they would open their next account with their current bank.