Okay. We are going to get started here. Next up, we have Chris Britt from Chime. Chris, really excited to have you here, particularly today on the heels of the acquisition announced yesterday. Big congrats to the team and looking forward to talking about it today.
Thank you. Looking forward to it.
All right. To get into it's been a little over a year since the IPO. I wanted to start pretty big picture. Coming into this year, there's a lot of focus on how the company could accelerate revenue growth and whether the sum of the momentum that you had last year would persist. I think second quarter really flipped that narrative, volume growth accelerating to 20%, some of the recent product initiatives having a meaningful impact and really quickly after launch. I was hoping we could kick off the discussion just reflecting on the first year as a public company and where you feel the company is today versus a year ago.
Yeah, thanks for the question and I really appreciate you having us here today. I feel really good about our position right now. If you look at the last year for Chime being a public company, we've put up great results quarter- after- quarter, and I think it's fair to say that we've really broken out in terms of being the leader, in terms of a trusted brand for mainstream Americans who want to manage their money with an entity that actually has their best interest. And I was really proud of the progress that we've made across a number of product initiatives. I think you can feel and see the real momentum inside the business.
One of the things we talked about going into the IPO was around the unlock that comes from owning our own core, and that was a big effort for us and a big leap to do that, but I think it's really paying dividends. Those dividends are only going to be accelerated now with the acquisition of the bank, which is one of the final pieces of the puzzle to enable us to achieve all of our goals. Taking a step back on the year, I'm really proud of the product velocity. We launched Chime Plus, we launched Chime Prime, we made great progress with our lending products and credit extension. That's obviously been a really positive line of business for us that's driving outsized growth and leading to higher RPAMs and that sort of thing. We also had some really exciting progress with our enterprise channel.
We're obviously a very well-known brand in America. Top 2 or 3 brand now on an unaided basis in terms of what brands come to mind when you think of online banking, right up there with Chase and BoFA . So pretty rare air, and certainly I would argue punching beyond our weight. But incredible opportunity for us going forward when you think about something like Chime Prime, where we basically give people 5% cash back for their everyday spend from what is essentially their direct deposit and their checking account. I would put that up against any bank offering in America. Combine that with 3.75% cash back, which is, I'm sorry, 3.75% APY on savings. That's seven or eight times the national average.
This bundle of services is very broadly appealing, and when I think about the future, I just think there's such a great opportunity to continue to expand to broader segments beyond the core that have driven so much of our success.
Great. Let's touch on the acquisition announcement briefly. Yesterday, you announced that you'd be acquiring Stride Bank, which is one of your two main banking partners. Can you give an overview of the acquisition and talk about the timing? Why now? Why does this make sense for the company?
Yeah. One thing that I've wanted to make sure that I was clear about just out of the gate is just how much respect we have for this management team at Stride. This is an organization that we worked with for pushing seven years now, and we have a very close relationship with that team. We're really excited for the core of that leadership team to also play an important role for us over the next few years as we work through this transition. As it relates to the strategic rationale, I've always said it's a matter of when, not if, in terms of owning a bank, right? Our ambition is to be the number one provider of checking accounts or primary accounts in America. We're now at over 10 million monthly actives. The majority of them use us as a primary bank account.
It's always to us been an inevitability that in order to achieve our ambition to be the leader in banking, we would at some point be a bank. There's a number of reasons why we thought the time was right to do it now. Obviously, there's a regulatory window that's open to some extent, and we enjoy very constructive relationships with the regulators who have supported us historically. So we anticipate the OCC and the Fed being supportive of this transaction. I'd say there's a couple reasons that really drove the movement now. The number one thing is the biggest unlock is going to be around product velocity. When you think about in the age of AI, you can create new products, new services, new experiences faster than you ever could.
But if you think about the production line of a regulated product, at a certain point, you get to that legal compliance, operations, all those sorts of reviews, which I would argue have worked really well with our bank partners. But inevitably, when you have redundant steps in the process, redundant compliance policies, we're not saying we don't want compliance or don't want legal, but we want to do it even more efficiently. I think that the most important sort of strategic rationale for this deal is to be able to move even faster. Number two, we are at a size and a scale where we need to have complete control of our destiny. So that means having full confidence and control of the resiliency of the underlying platform. We will get that combining Chime's modern technology with Stride's proven ability to scale their bank infrastructure.
I also think there's an element of trust that we're going to unlock here. So more directly connecting Chime brand and Chime app to a bank is most certainly going to unlock greater levels of trust for certain segments of the population who maybe aren't as comfortable banking through an app that has another bank that
Right
gives you the FDIC insurance and so forth. They want it all from one provider. I think that's an important consideration. Then finally, just the underlying economics. We're buying this bank for 1.5 times book, which is, I think, below-precedent transactions and so forth. Look, by the time the deal closes, it'll be even more attractive than that. This is a highly profitable bank with ROE greater than 25%. It's a very well-run business. We think there's opportunities for us to get even more out of these synergies, which we can dive into if you'd like.
Yeah. Let's talk about that. You talked about how owning your own core accelerated the product velocity. Now, as you own your own bank, what can you do that you couldn't do with your existing partnership models?
I would say, and we've obviously had this question from some investors as well. Again, full respect for our bank partners and Bancorp, they helped get us on the map, the first one that would take a risk and partner with us and to scale with us for so many years. We have tremendous respect for them. I think the relationships have worked well with the banks. We're probably the poster child for the successful bank partner relationship and how that can actually have a positive impact on the world. I wouldn't say we've been prevented from doing new products, but there's no question that we haven't been able to move as fast as we would like. Again, all for good reasons. We have our level of risk tolerance and compliance and so forth. They have theirs.
We're both mostly right, but we have different perspectives on those things. Just adding those friction points have made it a bit of a struggle at times. Again, we ultimately get to the product we would like to launch, but sometimes it just takes a little bit longer. I think this is going to streamline, and when we look at all the innovation, how quickly things are changing in the age of AI, we have to have full control of the product output and delivery cycle. We think for that reason, it's critically important. I wouldn't say the banks were like, "You can't do this product or that product," for the most part. We're excited. We'll be doing a lot more for our members over time.
Yeah. Let's maybe talk about the lending strategy and what this does. We've seen across the industry, having your own bank subsidiary can open up the aperture for lending. What are some of the opportunities you see with your existing liquidity products and potentially new products down the line?
Yeah, sure. I think that by owning a bank, we're going to have, obviously, some real efficiencies around not having to pay bank partner fees is going to be a big one. The other thing that maybe people don't fully realize is that once we own our bank and charter, assuming it all gets approved and we have a national charter, that's going to open up more opportunity geographically to expand into certain markets that we haven't been able to get into certain states. We'll be able to, with a national charter, be able to get into more areas. We believe it's going to allow us to modify our products and create even more flexibility to serve different segments of consumers.
Then, of course, actually having the deposits as a bank, there's a pretty significant funding cost that we've already negotiated very good deals with our banks, but once we have consumer deposits and we can use those to fund our loans, that will also be a nice unlock to be able to offer really compelling and affordable lending products that I think will resonate with a lot of people. Maybe just as a reminder, the way that it has worked historically is we bring a consumer in, they'd open up a tri-party relationship, essentially with us and the bank and the consumer. The consumer funds would go to the banks. Then we structured arrangements where the banks would lend us that money back to be able to facilitate our credit and lending businesses.
Taking an extra step out of the process creates more efficiency and more flexibility to do even more in areas that we'll continue to riff on. Like we've talked about the fact that we're doing a beta right now for an unsecured revolving line for a subset of our highest income and most loyal members. We'll keep riffing on that, and I would expect that you'll see more and more innovation in that area. Again, staying primarily as a payments company, but naturally as a primary bank account, we will be doing more in the area of credit and lending over time.
Yeah. Makes sense. Not to get lost in the acquisition announcement, you also raised Q3 and full-year guide meaningfully yesterday. This comes on the back of pretty meaningful acceleration across the business in Q2. I was wondering if you could talk about where that momentum is coming from, where you're seeing the sources of outperformance, and how you feel about the trajectory of the business from here.
Yeah, we see really strong performance across the board. We had given guidance for, I think, 25%-26% top line, or 25%-27% top line growth. We increased that to 30%, and we increased the adjusted EBITDA margin by a point as well for the quarter. So what's driving that is things are sort of working across the board. Chime Prime continues to be a great driver of growth, interest, and engagement among our member base. The people that end up qualifying for Chime Prime, we monetize at essentially twice the rate that we do from our average members. That's continuing to be a real bright spot for us. The other thing that happens is when you qualify for Chime Prime, in addition to the 5% and the 3.75 savings, you get access to an Instant Loan sort of as a default.
We've seen really exciting performance around the Instant Loan, which is our installment loan product, 3-1 2 months. That's been a real bright spot over this past quarter, and that's been growing at an incredibly fast double-digit clip.
Nice. Okay. Let's talk a little bit about operating leverage. The margin track has been very strong. Probably the biggest change in the financials versus the thinking around the time of the IPO. Incremental margins running north of 60%, that's well above the 40%-50% framework I think investors have been using. How should we think about the medium-term margin algorithm from here and the pace of convergence towards the 35% plus target?
Yeah, you're going to continue to see progress on that front for sure. I'm really proud of the progress that we've made on that front. We've communicated our intention to remain payroll cost flat going into next year. So you're going to continue to see nice operating leverage. Of course, we're always willing to invest in growth if we see good returns on deploying dollars for growth. But on the margin, the incremental margin side, we've communicated our intention to have that be greater than 60% for incremental margin for this year. And just to clarify, because sometimes I think this is misunderstood. That is an incremental margin based on revenue.
I think sometimes peer set companies talk about incremental margin relative to transaction profit.
If you were to do an apples for apples with how some of the other folks talk about it, we'd be over 70%. So it's a really exciting part of our business that I think is sometimes underappreciated and it's a really compelling business model we have right now, and I think we're still in the early days of fully realizing the profit potential for it.
Yeah. Makes sense. I guess one of the biggest drivers behind the business has always been the direct deposit relationship. Could you walk through how direct deposit conversion and retention have trended over the past year? And what are the things that you have done, whether it's the early engagement initiatives, Prime, the enterprise channel, to keep pushing that higher?
Yeah, those are all real contributors. You're right, I think that the success that we've had in developing primary recurring deposit relationships has really allowed us to stand out as a business and really enable these other product areas that have been so critical to growth. All this lending and credit that we do to our members, it's for primary accounts. I think last quarter we originated over $11 billion of lending. These are products that the terms on them are like 7 days, 10 days. So it's very, very highly efficient, and we operate them as we've disclosed, our MyPay, for example, is a less than 1% loss rate. The only reason that we can do that is because we have these recurring direct deposit relationships.
That's how we make sure that we are in a position where we're at the top of the repayment stack, and it's a win-win. Consumers love that flexibility. So many people in our country live paycheck to paycheck. I mean, even they say 50% of people over $100K live paycheck to paycheck. So we're able to do that really well and it's a huge win for our members. I think when we first IPO'd, there were a lot of questions around this early engagement strategy and we would tell the story of like, "Hey, we want to create a bigger pond efficient, so we want to make more reasons for people to engage with us, even in a lightweight way, and give us a better chance over time to eventually convert them." Not everyone's going to get married on the first date.
Some people want to try before they buy or whatever you want to say. Last quarter we saw our highest number in absolute terms of later stage direct deposit conversions. We think that strategy has worked really well for us. We also monetize those relationships before they do direct deposit. Because we do things like outbound transfers and inbound and so forth. There are ways for people to use the product without doing direct deposit. Yeah, look, the other incredibly exciting development for our business related to direct deposit is the success and the sort of seeds that we're planting related to enterprise.
We announced a huge deal with Allied Universal, as one of our first sort of major marquee enterprise deals where employees from Allied Universal will now be given the opportunity when they set up their payroll, or even if they're already an active employee, to get access to their payroll on demand every day for free. All you have to do is sign up for a Chime account. There's no limit either. Our direct-to-consumer MyPay has historically stopped at 500. We're doing some tests with up to 1,000 now, which have been successful so far. We'll be able to give the Allied Universal employees, no matter what they make, full access to their pay every day. You should expect to see a more focus on that area as well to complement the direct-to-consumer channel because you think about the opportunity.
These are people who 100% of the people that sign up through this channel get recurring direct deposit.
Right.
Even if they are more transient or if they leave that job, they can keep the Chime account and get the consumer version of MyPay at their next job or whatever. The other thing is a lot of these employers that we sign up, they just naturally have a lot of turnover. So it's almost like an evergreen channel.
Right.
It's not just a static employee base that's always there. Some of these partners that we sign up with might have 30% turnover in a year of their employee base. So there's like this evergreen channel. We're going to keep plugging it in, and it's really complimentary because you go through these enterprise channels and it's not entirely an enterprise sale because even though the payroll person or HR might be highlighting it, they say, "Yeah, of course I know Chime. I see them on TV," or, "My coworkers already uses it," or my family member. The power of the brand actually really helps to close that deal sometimes as well.
Yeah. That makes sense. I think Chime Prime is one of the drivers that we just talked about. It's come up several times across the conversation so far. So this is the premium membership tier. It's been a standout out of the gate. I think it was clearly one of the biggest positive surprises at earnings. What's your vision for what that product can be over time and how big a part of the user base Chime Prime members could be?
It's already a pretty substantial portion of the user base. I think Chime Prime is the future of Chime. We're going to continue to add products and services to that bundle that make it awesome when you use Chime for your everyday transactions. If anything, I think there's probably more work for us to do to open up Chime Prime to others who may not get traditional direct deposit, for example, but do want to use Chime as the primary way that they run their small business or have other side hustle and that sort of thing. So we're doing more work to figure out how to make sure that we're doing proper risk assessment to pull even more members into that more premium tier. We talked about this line of credit that we're going to be rolling out. We now have investment services.
We've got managed investments that are free to people that are on Prime. Over time, we're going to continue to add more and more pieces to that puzzle. We talked about launching joint accounts later this year, and we will continue to make additional perks. We have travel concierges. We have Priority Pass if you're in Chime Prime, which people really love Priority Pass. Most of our customers are not paying $800 a year for Sapphires and Gold Cards and all these sorts of things, right? But the ability to walk into the airport, maybe they're not traveling too much, but to walk in there and get access to Priority Pass.
Yeah
for free because they bank with Chime is pretty cool. It's pretty powerful. You can see it on Reddit, and you see people posting about it and sort of bragging that they've got a little extra swag because they're
Sure, yeah.
banking through Chime.
I think TAM expansion was a theme of your answer there. You've also talked about going up market in the income spectrum. Historically, you've talked about consumers making under $100,000. How does the product set need to evolve to go after a higher income demographic? Then maybe if you could just address head on the concern that we hear from investors sometimes around graduation risk from the Chime platform or maybe growing out of the product set.
Yeah. As it relates to graduation, we look at this regularly and we don't see any difference. In fact, we see higher retention rates for people at the higher income levels. So the graduation risk is we actually don't observe it. It's like a lot of pundits or investors ask about the state of the consumer and doom and gloom. It's like we don't see it in the data.
Right.
That's what I think should really tell the story. But when we ask our members about their feelings about Chime over the long term, we have over 75% of them tell us that they intend to be a Chime member for life. So we feel pretty good about that. I'd rather that be in the 1990s, but we feel like it's not a bad place to be. I think eventually, the way that we're really going to differentiate, especially relative to some of the incumbents, they're slower, they have high cost structures, they're very siloed, so you don't necessarily feel like everything's integrated. We run this company, a single member experience that's customized to their and personalized for their journey. So I think making sure that Yeah, and that's not just a throwaway line.
Actually, how do we make sure that we're offering you the right products with the right limits and sort of settings, if you will, based on the risk profile that this consumer has? We need to be a little tighter sometimes on limits and policies if it's a relationship that we're just getting started with. There's ways to get signals to determine, wow, this person is likely to expect a higher tier of service, a higher ATM limit, more flexibility around money movements, clearing mobile check deposits faster, which we do incredibly fast. I do mobile checks into Chime, and they get cleared in a minute or two. It doesn't work like that at other and it's not just because I'm the CEO, it's because I'm highly engaged.
Right.
One of the things I think is underappreciated about this category, I think a lot of people were like, "Oh," you guys remember five years ago when it's like every company's going to be a bank, and there's all these Banking as a Service, and you're going to get it through every different service provider. I don't believe that at all. Getting this right requires sweating the details. All the limits, all the policies, all the experiences when you run into some friction or you have a dispute, there's no reason that you have to bank it or pay through American Express to get world-class experience when you have a dispute or something. You can get it through Chime as well.
We just have to continue to make sure that we're leveraging, harnessing the data to be able to make informed decisions on how to make sure that when you're banking with Chime, you feel like it's awesome and really makes sense relative to the options that you have. I think it's right there at our fingertips to execute in that way.
Okay, I wanted to move to Instant Loans. Originations were up 70% sequentially to about $300 million. Sounds like that has continued into the third quarter. Can you talk about where you are in scaling eligibility and borrowing limits for this product and what your approach is to managing credit risk?
Yeah. Let me start with credit risk, which is the first thing, and I am really proud of the team and the risk team that we have and our whole lending and credit operation. These are loans that are underwritten, again, by direct deposit is the way that you get eligibility. We allow for up to a few thousand dollar loan. Like any lending book, we find that the repeat borrowers are the areas where you can really make the relationship work really well financially. We are continuing to scale this, and we feel really good about the progress that we have made so far. The eligibility today is primarily just for our Chime Prime members in the states that we actually are able to offer this product in, which is maybe 80%, 85% of the country, if you will.
We feel really good about that product as a growth vector, and it is actually, when you look at the Net Promoter Score of all of our products, it is the number one Net Promoter Score product across Chime, which is already a well-loved company, as you all know. We feel really good about the opportunity to invest. Then when you get those repeat loans, you are just locking in consumer engagement and love, because of how seamless and easy and the attractive terms that we have for members that use it.
Right. Okay. Sticking with the theme of new products, the acceleration of product velocity over the past two years has been really significant. When you think about the benefits of having your own tech stack, ChimeCore, as well as some of the benefits from AI on engineering productivity, what impacts have these factors had on Chime's ability to roll out new products?
Yeah. Honestly, the success that we have had and the unlock that we have been able to achieve by owning our core in ChimeCore was part of what influenced our decision to do the deal with the bank. We can move so much faster when we are the ones that can ultimately make the decision on how we are going to prioritize initiatives and make final calls on the approach that we are going to take to building products.
So I feel like the progress that we will be able to make related to product development has been incredible, and I think the bank is going to really help unlock that. You think about the services that we built with Chime Prime and investing and now with the joint accounts that we will be rolling out. I think all of these are really an unlock from Prime, I am sorry, from ChimeCore.
I think we're in an age and era with AI that you really need to be completely vertically integrated if you're going to be able to take full advantage of the data that you have. We're in a position where we have such a privileged position with the data, and that's why I'm so excited about Jade, our financial assistant, because not only is it going to allow, and it already does allow people to sort of look back historically and see that you're spending too much money at this or that. But it gives you insights, but it can also help you take action, and I think that's going to be a real differentiator certainly relative to incumbent players.
But also maybe just leveling up a bit, when I think about the impact on AI and financial services, I believe that we have a unique opportunity because of the trust that we've earned with our member base who are already using us as their primary account. They're in the app five times a day. They're doing 50+ transactions a month. You're going to want your agent that takes action for you to most importantly be trusted. I think we've earned outside trust among our member base, and I think that's going to be quite a bit differentiated than some of the other service providers that are popping up. Obviously, information and insights about money management is going to be free and it's going to be available everywhere.
But having a bank account that can power actually actions that move you towards financial progress will be a real differentiator for us going forward. We do basic stuff right now, like give you insights and allow you to unsubscribe if we see that you're paying for Netflix twice or whatever it is, we'll do that all on your behalf. But we think there's a lot more that Jade should be able to do for our members to help them make financial progress within Chime and maybe in certain situations outside of Chime.
Yeah. Makes sense. I've got a couple minutes left here. I'm going to jump around here. But I want to talk a little bit about how AI is shaping the actual operations of the business. You announced about a 10% workforce reduction. It was described as doing it from a position of strength, the goal of flatter, faster. Talk about what changed internally, what made this the right moment, and how much of this is AI-enabled organizational design changes versus just an aim to streamline the business.
Yeah. The best teams are smaller teams that work in a flatter organization with clearer accountability, and we see it in how our technology and product teams are getting their work done. The teams are literally half the size of what they used to be and able to do just as much as the old team. I wouldn't attribute the RIF entirely to AI, but certainly that was a part of it. It was more around accountability, just the natural progress that all companies need to do to make sure that as they grow and they scale, that they don't become bureaucratic and smaller teams can run through walls to get stuff done and don't feel like they have to go to a committee before going to the other committee and then do the cross-coordination with all the things.
The biggest thing for us at this point in time is retaining that entrepreneurial spirit. We've had great success, but we're only scratching the surface. We want to be the number one provider of bank accounts in America.
We think if we stay on this current growth path, that that is something that we can achieve over the next four or five years.
Makes sense. Got just a couple seconds left here. I'll just squeeze one more in. The final one's just on unit economics. You guys have consistently cited very attractive LTV to CACs in the business. I think calling out 9x most recently. That's a very high unit economic number to cite. Talk about the sustainability of those economics over the long term and how you think about potential improvements to it.
Yeah, we feel really good. If you look back at all the time leading up to our IPO, no one had a metric, no one had a goal of like, "Hey, where's the revenue production department?" It wasn't about RPAM, it was about developing deep member relationships that would sustain for years and years. I would say we're still very early in our monetization journey. It was funny, the first question I had yesterday was around, "Oh, now you're going to become a traditional bank and charge a bunch of fees." That's actually not the strategy. The strategy remains the same, asset light, payments driven, and consumer friendly. I just think there's a great opportunity for us to, over time, continue to monetize relationships in a member-aligned way. I mentioned double the RPAMs for our Chime Prime segment.
That just opens up a whole new world for us, right? If you're suddenly acquiring people at the top of the funnel that have double the RPAM, there's more that we can invest into those relationships. It'll be a learning phase for us, but we feel really good and really confident about what this next chapter can be as we continue to monetize. With healthy LTV to CAC, there's a lot of runway that we can go to from here.
Okay. That's a good place to leave it. Chris, thank you for joining. Great conversation. Congrats on the acquisition.
Thank you very much.