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Written by Cyndie Martini
on January 28, 2020

Challenger banks or neo-banks, as they are sometimes called, are fintechs that offer their customers high-yield savings and lending products. The plot twist is that these fintechs are not banks. They are simply utilizing their technology to provide highly efficient/personalized banking services by latching onto real banks. These bank-based fintechs are often hits with younger generations.

One such fintech is Chime. Chime allows its customers to get paid up to two days in advance by direct depositing with them. They offer a Visa debit card, can round up spending and send the difference to your savings account, and provide plenty of insights to understand how you are spending and saving, which can lead to better financial habits.

But Chime is not a bank. Instead, they have partnered with The Bancorp Bank or Stride Bank, N.A., Members FDIC for banking services. How are they able to issue a debit card? From Chime's website, "The Chime Visa® Credit Builder Card is issued by Stride Bank pursuant to a license from Visa U.S.A. Inc." Many fintechs, such as Simple and Moven, are using the exact same playbook.

By not becoming a bank, these fintechs get the best of both worlds — banking services without the regulation of being a bank. This allows them to continue their rapid growth and innovation.

“While these neo-banks can’t yet match the complete suite of banking products that a traditional branch-based bank can, this doesn’t matter to the typical consumer because they rarely, if ever, use any of the hundreds of products that are in a bank’s arsenal," Frank Rotman, founding partner of QED Investors, said to Bank Innovation.  "So we’ll be talking about challenger banks in 2020 and in 2021 and in 2022 and eventually the ‘challenger’ title will be dropped because they’ll be major players in the ecosystem

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