Chime recently launched a new feature known as Chime Deals, powered by a strategic partnership with Upside, aiming to offer cashback on member purchases. If the feature feels oddly familiar, it’s because on the surface it seems similar to the the cashback offers from major banks and CashApp's Boosts feature.
But even though Chime’s new feature is neither unique nor innovative, it’s Chime we’re talking about, so we can count on best-in-class execution that has important staying power. The way that practically plays out is:
Meaningful offers that actually matter for everyday Americans like $0.22 / gal back on gas and 11% back on groceries
Ongoing cashback at regularly visited retailers instead of one-off ad-hoc deals at esoteric merchants
Long-term partnerships that has been baked into unit economics so that it isn’t likely to be pulled or modified materially for the foreseeable future
This also may represent an evolution in thinking about how cashback rewards drive unit economics. For the longest time, we on the Strategic Finance team were hesitant to offer cashback rewards to members, because, perhaps counterintuitively, while initially exciting for members, cashback rewards didn’t actually seem to drive material changes to spend. So what we’d see in experimentation is that you might get one-time benefits to member acquisition (a reduction in effective CAC), but it would be at the cost of permanent erosion to margins (essentially a long-term reduction in LTV) that was not offset by higher purchase volume.
When I saw this launch, I initially wondered if folks at Chime had gotten more comfortable with the trade-off. But after digging deeper into Upside’s value proposition for businesses, it’s more clear that these offers are funded not by Chime but by the merchants themselves. The idea is that a merchant may sacrifice some margin, but they’ll make it up in volume - “We fill your empty tables, checkout lanes, and gas pumps with new transactions to drive proven, incremental, profitable sales.”
My only major gripe with Chime Deals — and indeed, similar offerings from big banks and other companies — is the unnecessary need to activate each offer manually. This extra step seems like a deliberate hurdle or designed to dampen actual participation. It's a practice that's become frustratingly commonplace, under the guise of being standard procedure, yet it effectively slashes redemption rates, sometimes by as much as 80%. It’s unfortunate that folks are taking advantage of this behavior to mention 10% back on Big Retailer which brings in all the new members, knowing that the Offer Activation step will effectively reduce the cashback payouts to 2%. Why not streamline the process by automatically activating these offers and adjusting the cashback rates accordingly?
Fintech nerds may try to point out that you need to be able to attribute and tapping the “Activate” button helps that but I find that debatable. That argument implies we lack the technological capability to link a user’s activation of a special offer with their subsequent transactions—a surprising suggestion in today's data-rich environment. If the industry can't leverage existing transaction histories to infer the impact of specific offers, then it's time to reassess our data analytics strategies.
Moreover, evidence suggests that manual activation isn't a necessity. The Robinhood Cash Card operates under a "No Activation Needed" policy, demonstrating that it's entirely feasible to attribute transactions to offers without requiring users to jump through hoops. This approach not only simplifies the user experience but also implies a more sophisticated back-end solution to track offer engagement and redemption.
I’m hoping Chime can leverage its reputation for best execution and maybe try something a little different by enabling automatic activation for offers. This is the team that can use unit economics to find the right “true offer rate” for cashback that incorporates automatic activation while still providing attractive offers. So, Chime, how about taking the lead on trying something new? Automatic activation with true offers might be the way to get out in front of the innovation cycle for next-level member satisfaction.