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Challenger bank Chime has announced that it’s delaying its long-awaited initial public offering until the second half of 2022, with reports suggesting that plans will be shelved until the fourth quarter. Citing the necessity of bringing out new products, what could Chime’s decision mean for the outlook for initial public offerings throughout the year ahead?
Initially, Chime had been targeting a March 2022 IPO, with an intended valuation of between $35 and $45 billion. The leading fintech startup has claimed that the postponement is down to the company focusing on releasing new products – which may include more open banking solutions like investing features. According to a spokesperson, the company’s target valuation hasn’t changed.
Despite its given reasons for the delay, a major factor behind the shelving of Chime’s IPO plans is likely to have been the volatile listing conditions across global exchanges – and particularly those in the fintech sector. Publicly traded fintech stocks have fallen by 40% since the end of October 2021, with major firms like Block and PayPal tumbling by as much as 60%.
(Image: eMarketer)
As the chart above shows, challenger bank account holder figures are set to increase rapidly over the coming years, even despite the rate of adoption falling as we reach the midpoint of the decade.
This means that leading fintechs can expect almost double the number of account holders using their services by 2025 in comparison to 2021.
(Image: Apptopia)
According to Apptopia figures, Chime’s monthly active user base places the challenger bank clear of major startups like Revolute, Starling Bank, and N26. In fact, the company is rivalled only by major Latin American neobank Nubank and Monzo.
“Since its launch in 2012, Chime has grown into one of the fastest-growing financial technology platforms in the US,” said Maxim Manturov, head of investment advice at Freedom Finance Europe. “Chime operates a fully mobile banking platform, providing many of the services of traditional banks without the need for branches or physical locations; it also offers current accounts with no monthly fees.”
“What sets Chime apart is that they do not have a physical location, customers can operate their accounts online. The Chime mobile app is highly rated in the Apple and Android app shops and customers have access to an account at any time and can contact support via online chat or phone,” Manturov added.
As a digital banking service, Chime provides users with access to checking accounts with no monthly or overdraft fees. The challenger bank has built a user base of millions of customers across lower and middle-income homes throughout the US and beyond. Back in August 2021, the San Francisco-based company raised $1.1 billion in venture capital at a $25 billion valuation.
Fintech Stocks Feeling the Pinch
The recent downturn in fintech stocks may come as a surprise to investors who have been accustomed to seeing challenger banks outperform their benchmarks during the peak of the Covid-19 pandemic. Fintech stocks have been feeling the pinch of late due to their inflated IPO valuations and the Fed’s decision to raise interest rates repeatedly throughout 2021.
The pandemic itself accelerated the process of digital transformation and the adoption of online tools associated with fintech. This, in turn, accelerated the technological transformation that allowed fintech companies to deliver safe integrated services to consumers at a competitive price.
Despite this, investor concerns over rising inflation and multiple interest rate hikes have paved the way for heavy outflows throughout the fintech sector. Although fintech stocks are associated with high growth stocks, the expected interest rate increases have been problematic because the companies need to borrow capital to fund their growth.
There’s also growing pressure emerging from traditional banks as they seek out new opportunities to upgrade their suite of digital services.
Will Chime Maintain its Targeted $40 Billion Valuation?
Chime has generated $2.3 billion in VC funding to date, and currently holds a $25 billion valuation. This makes the challenger bank one of the most valuable consumer fintechs in the United States.
As the company continues to grow, its valuation has been pushed towards an anticipated $40 billion. However, recent sell-offs may impact its stock market performance.
The shelving of plans to launch an IPO during the current market climate is likely to be a wise decision among Chime’s management. As other large fintechs struggle to maintain their value like Nubank – which recently took on a $1bn cash injection from Warren Buffett’s Berkshire Hathaway to maintain stock performance – we’re seeing many challenger banks battle to maintain their market cap.
Fundamentally, until a Chime IPO hits the market, the company’s finances are private. This means that it’s hard to know exactly how the company is performing financially – making it more difficult to ascertain an appropriate value.
Despite widespread sell-offs and a struggling fintech market, the future remains bright for challenger banks, and we’re likely to see a delayed Chime listing comfortably attain a $40 billion market cap – just so long as the fintech industry can recapture the growth it experienced across late 2020 and early 2021.
