Chime Drops 'Bank' Term After Regulatory Pushback

Chime's Self-Identification Under Scrutiny

Chime, which has positioned itself as a rapidly expanding fintech company in the United States, has agreed to cease using the term “bank” in its self-description, as reported by American Banker.

Investigation and Settlement

The San Francisco-based company, established eight years ago, was investigated by the California Department of Financial Protection and Innovation. This investigation stemmed from Chime’s use of “chimebank” within its website address.

Furthermore, the agency’s settlement agreement details that Chime employed the terms “bank” and “banking” in its advertising materials.

Regulatory Compliance

Chime opted to settle the matter before a deadline set by the regulatory body. This decision reflects the strict regulations surrounding the use of banking terminology in the U.S.

Entities cannot legally present themselves as banks or credit unions without the appropriate licensing. The California Department of Financial Protection and Innovation is responsible for issuing these licenses and overseeing state-chartered banks.

The settlement explicitly states that Chime never held a license to operate as a bank, either within California or any other jurisdiction, nor was it exempt from such requirements.

Chime's Position on Banking

Chime has previously attempted to differentiate itself from traditional banks. CEO Chris Britt, during a funding announcement last September, described the company as resembling a consumer software firm rather than a bank.

He characterized their business model as transaction-focused, predictable, and consistently profitable.

The Rise of "Neobanks"

Despite this, Chime, like many newer fintech companies, has adopted terms like “neobank” and “challenger bank.” This is likely due to the ease with which these terms communicate the provision of banking services to consumers.

These services include debit cards, spending accounts, and savings accounts, all accessible through mobile devices.

Implications for the Fintech Industry

This settlement is expected to prompt similar startups to clearly state whether they possess a bank charter. Many operate by partnering with established banks that do hold such charters.

Chime now explicitly identifies itself as a “financial technology company” and “not a bank” on its website. It also clarifies that its services are provided through partnerships with The Bancorp Bank and Stride Bank, both of which are FDIC insured.