Conventional wisdom—and even some of challenger banks’ own advertising—holds that fintechs are winning customers because they provide a superior customer experience and have better mobile banking tools.
But it’s more than that. Digital banks are competing successfully with two additional strategies: 1) product featurization, and 2) segment specialization.
Chime is a good example of a challenger bank competing with a “featurization” strategy. The fintech certainly offers a good user experience and touts no fees to attract consumers in the low- to middle-income brackets.
But there are three features of the company’s product offering that are key to its success:
- Early access to money. Nearly a quarter of Chime customers said they chose the fintech as their primary bank because it offers two-day early access to their direct-deposited paychecks, as well as to government stimulus and tax refund checks.
- Spot Me. This product feature lets Chime customers make debit card purchases that overdraw on their accounts with no overdraft fees. Chime customers with monthly direct deposits of $500 or more are eligible to enroll. According to Chime’s website, “limits start at $20 and can be increased up to $100 or more by Chime, based on factors such as account activity and history.”
- Credit-builder credit card. Chime’s predominantly low- to middle-income consumers aren’t in the crosshairs of the big credit card issuers’ marketing efforts. According to Cornerstone’s research, 15% of Chime’s primary banking customer base either has the card or is on the waitlist for the card—all within six months of launching the card. To get the card, a consumer must have a Chime Spending Account and have set up their direct deposit with the company.
The second strategy is segment specialization. There are a growing number of challenger banks that focus on serving specific, often narrow, segments of consumers. These fintechs compete by identifying the specific (and often underserved) needs of their target markets…
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