Chime, Simple, or Varo Money?

 

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Legacy banks in the United States can be hit or miss with customers. On the one hand, banks help millions of people to navigate and plan their financial lives. They also provide a range of products and services for every need. On the other hand, some banks routinely discriminate against people of color by either denying them loans or charging them higher rates. A few banks regularly make headlines for the wrong reasons, for example, Wells Fargo and its numerous scandals, and Goldman Sachs and its constant engagement in criminal behavior. (Banks are run by people, the same suspect people responsible for the dishonest acts above. However, these individuals are rarely held legally accountable. Instead, many walk away unpunished, get golden parachutes, or end up working in the White House.)

The shortcomings of US banks have created opportunities for alternatives. Secondly, new generations of users seek different banking experiences. “Challenger banks” are startups that compete directly with established banks in a country. They aim to make financial dealings more convenient, mobile, hassle-free, transparent, and cost-efficient. For example, customers can open accounts using smartphone apps instead of visiting branches. Also, unlike traditional banks, their products and services are meant to accommodate new types of workers, including freelancers, remote workers, digital nomads, and global citizens.

How to Choose a Mobile Banking App/Company

Choosing the best mobile banking app depends on three factors, including your needs, financial goals, and budget. Understanding those aspects will make it easier to select the right partner and company.

Assess your needs first. Before evaluating financial apps, consider your requirements. For example, you want flight insurance because you travel a lot. Or, you request payments often and want to use a customizable link to make the process more efficient.

Understand your financial goals. For everyday financial transactions, mobile-first banks are excellent. However, suppose you want to start investing or seek a tax-exempt account. Most challenger banks don’t offer robust investing platforms. Moreover, tax-free accounts are rare. Thus, you might have to look around or stick with the status quo to achieve your goals.

Consider your budget. While free accounts/plans are standard with neobanks, users must pay to access more features and benefits. It’s the classic freemium model that thousands of tech companies use. They offer free plans with the goal of converting users to premium accounts. Secondly, monthly plan/subscription fees can add up to over a hundred euros, pounds, or dollars annually. However, for some people, paying monthly fees might not be financially prudent or practical for their budget/saving objectives or debt obligations.

Standard Features

Fintechs and neobanks will continue to add products, services, and features to compete with their rivals and traditional banks. What one company doesn’t have today, it will likely offer in a few months to a year. Therefore, you needn’t worry about missing out on the long term. Challenger bank apps typically have these features:

  • Virtual and physical bank cards
  • Instant push notifications on all transactions
  • Analytics and categorization of expenses
  • Multiple accounts for saving and budgeting goals (not the same as an interest-bearing savings account)
  • No foreign exchange fees when spending abroad
  • Free money transfers to other users
  • Make recurring payments
  • Download and print account activity
  • Connectivity to third-party apps, for example, Apple Pay and Google Pay
  • Card lock/unlock at your discretion, for example, if your card gets lost or stolen

Three challenger banks that should be on your radar are Chime, Simple, and Varo. Let’s review what they offer.

US Challenger Banks

Chime

Chime makes mobile banking easy with a modern and intuitive banking app that handles everything from tracking your spending and savings to paying friends. Its features include:

  • Get paid up to two days early by using direct deposits.
  • Withdraw funds at thousands of fee-free ATMs.
  • Deposit a check by taking a picture of it.
  • Mail checks to businesses and individuals.
  • Round up transactions to the nearest dollar to save the difference.
  • Automatically transfer 10 percent of every paycheck to your savings account.

Simple

Simple is a technology company that’s changing the way people bank and think about their money. It blends budgeting and banking into an app with tools to help people save and spend on the things they want. In 2014, Simple was acquired by BBVA, a global Spanish bank.

  • Set an amount to save and a date to save it by, and let the app turn your “Goal” into an easy win.
  • Use “safe-to-spend” to keep track of your budget and financial goals.
  • Withdraw funds at thousands of fee-free ATMs.
  • Add photos, notes, and hashtags to every purchase.
  • Search transactions by merchant name, keywords, custom labels, and hashtags.
  • Share your everyday finances with someone else.

Varo Money

Varo offers premium bank accounts, high-interest savings accounts, and tech-first features to help people manage their money more efficiently. It’s poised to become a full-fledged bank, making it the first of a new wave of fintech startups to win that approval in the US.

  • Get paid up to two days early by using direct deposits.
  • Round up transactions to the nearest dollar to save the difference.
  • Automatically transfer a percentage of every paycheck to your savings account.
  • Withdraw funds at thousands of fee-free ATMs.
  • Deposit cash at thousands of retail locations nationwide.
  • Deposit checks in the app or have Varo mail paper checks for you for free.
Revenue Models

Since challenger banks differ from traditional banks, you might be wondering how Chime, Simple, and Varo make money.

Chime makes money from interchange fees. Every time a customer uses her Chime Debit Card, Visa processes the transaction and charges an interchange fee for the service. Chime gets a percentage of that fee every time. It charges $2.50 when you get cash from either an over-the-counter withdrawal or an out-of-network ATM. Click here for Chime’s fees.

Simple makes money by splitting the interest margin, i.e., the difference between the amount of interest earned on loans and the amount of interest paid to customers for balances. It gets a percentage of interchange fees when customers use their debit cards. It may make money on selling checkbooks. Click here for Simple’s fees.

Varo makes money by splitting the interest margin. It gets a percentage of interchange fees when customers use their debit cards. Click here for Varo’s fees.

Products & Services

Checking Account

A checking (current) account is a bank account that allows you to conduct everyday financial activities, such as deposits, withdrawals, bill payments, and recurring payments. A current account typically doesn’t attract interest but may receive if it maintains a minimum amount as set forth by the bank, for example, $25,000.

All three challenger banks offer checking accounts, but only Simple provides physical checkbooks.

Savings Account

A savings account is a bank account where you can store money you don’t need right away while having easy access to funds. It typically earns a modest interest rate.

All three challenger banks offer savings accounts. Simple and Varo offer competitive annual percentage yields (APY), whereas Chime does not.

Overdraft

Overdraft protection can be costly. However, many people find it useful. Chime and Varo support overdrafts, whereas Simple does not. Chime offers SpotMe, which is an alternative to bank overdrafts. SpotMe lets you make debit card purchases that overdraw your account with no overdraft fees. Customers can overdraw by up to $100. Varo doesn’t have an official overdraft feature, but it lets customers overdraw their accounts up to $50 without fees. It will automatically take the money back when customers add more funds to their accounts.

Other Products

All three companies lack insurance and international money transfer products. Alternatively, TransferWise is a money transfer service that is available to US citizens. It also offers a “borderless” account, which is like a zero-interest savings account. Users can send, receive, and hold money at mid-market exchange rates and low fees.

Comparison
ChimeSimpleVaro
Checking accountYesYesYes
Savings accountYesYesYes
Personal loanNoNoYes
OverdraftNoNoNo
Money transferNoNoNo
InsuranceNoNoNo
Investment accountNoNoNo
FeesNoneNoneNone

*By invitation-only.

Alternatives

European Challenger Banks

US challenger banks pale in comparison to their European counterparts, and the latter has noticed. European challenger banks such as Revolut, N26, and Monzo offer an impressive suite of products, services, and features in their home countries. Knowing this, they’ve entered the US market with goals of replicating their offerings and successes. N26 has the early lead, but Revolut is the company to watch given its supremacy in other markets.

US Challenger Brokers

Challenger brokers focus on low account fees and investing in low-cost exchange-traded funds (ETFs). Secondarily, some offer interest-bearing cash accounts, which differ from traditional checking and savings accounts. If saving is your goal, challenger brokers are worth reviewing.

Savings Apps

Digit is a savings app that analyzes your spending and automatically saves the perfect amount each day. User accounts hold savings until withdrawn, and funds are held at FDIC-insured banks. Digit accounts are interest-free, but it pays a 1 percent savings bonus every three months. Digit is free for 30 days, then $2.99 a month.

Green Dot provides millions of people with reliable and affordable cash accounts to make everyday banking hassle-free. It also offers high-yield savings accounts. Customers can get 3 percent cashback on online and in-app purchases. It charges a monthly fee of $7.95, which is waived when the user spends $1,000 or more on her card in the previous month.

Immigrant-Friendly

Remitly, a remittance and money transfer service, has launched Passbook. It allows a person to use different picture IDs–whether they are from the US or not–to sign up. There are no foreign, minimum balance, monthly, overdraft, or card replacement fees.

Best Products & Services
  • Best for sending money: TransferWise
  • Best for holding multiple currencies: TransferWise
  • Best for saving: Varo
  • Best for personal loans: Varo
  • Best overdraft: Chime
  • Best for global citizens: TransferWise
  • Best for immigrants: Passbook
  • Best card design: N26
Recommendation

US challenger banks are making steady progress, and consumers should take note. While they don’t offer a wide selection of financial products, they aim to be cost-free, technology-driven, and convenient with more products to come.

I will be watching Chime and Varo closely. I’m less optimistic about Simple because it’s owned by a legacy bank that has been around for decades. I will be following European neobanks to see what inroads they make. Challenger brokers are successfully upending the investment marketplace, so perhaps they’ll do the same in banking. Ultimately, US customers have ample choice to circumvent high and hidden fees, nefarious activities, discrimination, long lineups, and unnecessary paperwork. Financial mobility is here and exciting.

 

Chad Tennant

Chad is a digital marketer, consultant, and publisher. At Digital Fodder, he offers insights and strategies concerning online marketing, ecommerce, working online, YouTube, and more. At Partnercade, he helps companies grow their affiliate program revenues and partnerships. Connect or start a conversation with Chad on LinkedIn.

 
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