Dive Brief:
- Chime last week became the latest challenger bank to let customers overdraw their accounts without penalty.
- Through the SpotMe program, the bank will cover users when a debit-card purchase puts their balance "up to $100 or more" in the red, according to Chime's website.
- The move comes about a week after branchless competitor Varo launched a similar initiative.
Dive Insight:
SpotMe marks both an attempt to counter big banks' practice of charging overdraft fees as well as a move to one-up Varo and other challengers.
"The notion of someone going negative by as much as $5 or $10, and then charging them $35 or $40 for an overdraft fee, makes no mathematical sense," Chime CEO Chris Britt told American Banker.
Users can sign up for SpotMe if the direct deposits to their Chime account total $500 or more per month. The amount by which Chime lets customers overdraw is variable. For some, the limit is $20. But the bank may boost a user’s limit to $100 or more based on account and direct deposit history, spending activity, account balance and risk factors, the bank said.
Chime will recoup the overdrawn amount from the next direct deposit. The bank will simply decline purchases that would overdraw customers beyond their limit.
By comparison, Varo lets customers overdraw their accounts by $50 as long as they make five debit-card purchases per month and their direct deposits total $1,000 per month.
More than 500,000 customers are eligible for SpotMe now, Chime said. The bank's customer base stands at 5 million, according to TechCrunch, with 2 million joining since March. Varo, by comparison, expected to surpass 750,000 total customers in July, according to American Banker.
Britt said he's aware some customers may use SpotMe in bad faith. "The reality is that you will have some loss from offering a service like this," he said. To that end, Chime gives users the option to tip the bank when it recoups negative balances. Payroll advance companies have come under fire for denying eligibility to customers who don't tip. Chime, on its website, assured customers that won’t be the case. "Also, note that whether or not you tip won't affect your SpotMe eligibility," the company wrote.
