Chime Refreshes Its Credit Product

Chime, the leading U.S. neobank, announced a revamped “Chime Card” credit card last week. The new card replaces the Chime Secured Credit Builder Visa® Credit Card (wow, a mouthful), adding a new design and a limited cashback feature to its existing product.

Like its predecessor, the new card carries no annual fee, APR, or minimum security deposit. It is powered by a consumer’s linked Chime debit account, and the amount available to spend varies with that account. While the previous card carried no rewards, the new card will earn users 1.5% cashback on rotating quarterly categories (and 0% elsewhere), provided the users have a direct deposit into their Chime debit account.

An interesting feature of the rewards is that they will be paid out weekly, which is much more frequent than most cards, which pay rewards at the end of each monthly statement. (A notable exception is the Apple Card, which pays rewards daily.) 

A surprising feature is an upgraded card design. You can pick between black or green (both lovely) or pay $50 for a titanium card. This is more proof that card design matters and folks will pay for upgraded design. 

Is the metal card worth it?

Under the hood, Chime improved the management of the credit limit, with an integrated and automated available-to-spend balance. In contrast, the earlier edition of the card required consumers to manually transfer funds from their main debit account to a secured account to increase the limit.

Credit building is a tough space: issuers want to limit risk to borrowers with no (or limited) or poor credit history. At the same time, they want to help people improve their credit so that they can offer them additional credit products. 

Traditional secured cards approach this by requiring users to make a cash deposit, which isn’t accessible until the card is closed and paid in full. Users must pay off the card weekly with funds from outside the system. Several new fintech credit builder products, like Chime, automate this process. The idea is to limit risk (Chime knows how much money is in the associated account and can transfer it as needed) and improve scores faster (if the payment is automated, you’re not likely to miss one).

That said, it’s unproven if this is a true reflection of a user who is learning to manage credit or a user who can simply manage credit because it is being done for them. Credit scores are designed to assess people's risk based on their behaviors and attitudes. The scores certainly have flaws, and I am not here to debate that, but what I don’t know is if folks who use these cards are getting a helping hand up or a false rung on a ladder.

A Super Subprime Merger

I don’t often write about the big subprime lenders, but given the Chime discussion and this week’s news, it seems like a good time.

Atlanticus Holdings Corp. is a consumer credit giant with a $1.15B market cap. Like many fintech companies, it operates by partnering with an issuing sponsor bank to offer credit cards under proprietary brands. The top two leading card brands are the Aspire Mastercard and the Fortiva Mastercard. Both cards are issued by The Bank of Missouri, which has also sponsored many fintech programs.

Last week, Atlanticus announced its acquisition of Mercury Financial LLC (mercurycards.com, and also mercuryfinancial.com). (No, not that Mercury (mercury.com) or that Mercury (mercury-pay.com).) This Mercury issues cards from First Bank & Trust, another long-time sponsor bank, which once issued the Final Card (which morphed into the Apple Card). 

Both companies target users through mail offers and online channels. Mercury managed more than 1.3 million cardholders and $3.2 billion in card balances, leading to a giant with more than 5 million cards and $6 billion in outstanding balances. This is more credit cards than Fifth Third and more in outstanding balances than Truist.

Maybe we fintech people should pay more attention here. Mercury is 8 years old and has built a bigger book of business than most fintech issuers. Are they a fintech? Let me know in the comments.

CardsFTW

CardsFTW, released weekly on Wednesdays, offers insights and analysis on new credit and debit card industry products for consumers and providers. CardsFTW is authored and published by Matthew Goldman and the team at Totavi, a boutique consulting firm specializing in fintech product management & marketing. We bring real operational experience that varies from the earliest days of a startup to high-growth phases and public company leadership. Visit www.totavi.com to learn more.

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