FinTech: Branchless Bank Chime Offers A Credit Card That Doesn’t Allow You To Get Into Debt
Challenger bank Chime is addressing the growing popularity of debit cards.
A study by the U.S. Fed found that around half of all non-cash transactions in the U.S. in 2018 were conducted using a debit card. Neo-bank Chime found from its own survey that younger customers tend to prefer to use debit cards. Nearly 67% of the survey respondents from the demographic class known as millennials said debit cards are better for their security and inbuilt cap on overspending. These customers did not want to assume debts that they would struggle to repay. Chime has now introduced the Chime Credit Builder Visa Credit Card. It is a kind of hybrid between a credit and debit card. (Coinspeaker)
Chime Credit Builder Visa Credit Card
According to the Chime website, the Credit Builder is a new way to build credit that does not require any fees, credit checks, or minimum security deposit. Best of all, it features a 0% APR.
Basically, the credit card works like a debit card. Customers transfer their spending target from their Chime spending account to their Credit Builder Secured Account. They can now use the Credit Builder Credit Card to spend up to a limit of whatever has been transferred and is available in this account. Note that the money in the Credit Builder Secured Account is held as collateral towards the Credit Builder Card. It is, therefore, the maximum amount that can be spent on the card.
At month-end, Chime’s Safer Credit Builder will automatically adjust the dues if any on the credit card with the balance in the secured account.
Since the credit card balance has been settled, Chime will report the payment to the major credit bureaus such as TransUnion, Experian, and Equifax.
Over time, the amount spent on the credit card will help to build up the customer’s credit history. This could be extremely useful at the time of a large credit event such as the purchase of a house.
“Americans have embraced debit cards for greater control but this limits their ability to establish or build their credit score,” noted Chime CEO Chris Britt, in a launch announcement, and as reported by TechCrunch. “We created Credit Builder to help our members stay in control and safely build their credit with their everyday purchases,” he said.
Valuation of the challenger bank
In March, Chime reported the completion of fundraising of $700 million at a valuation of $5.8 billion.
Chime is a fintech that works like a bank. The banking interface is provided by Bankcorp Bank (NYSE: USB) and Stride Bank.
It has reported rapid growth in its customer base because it charges no fees.
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