By Imani Moise, Anirban Sen and Anna Irrera

(Reuters) – Digital banks including Chime, Varo and Current have won over more U.S. customers during the coronavirus pandemic by processing stimulus payments quickly, setting them apart from traditional banks and generating valuable word-of-mouth referrals.

In some cases, the companies pre-funded deposits they expected their customers to receive from the Treasury Department. In others, they received funds quickly and sent them through faster than traditional banks. That generated praise from individuals who celebrated their early deposits online and encouraged others to join their digital banks.

“I LOVE YOU @Chime,” a user with the handle @jayy702 Tweeted after getting some early stimulus funds on Dec. 28. “Reason number 1000 why I’ve been with them for years now. #ChimeCares.”

Also known as challenger banks or neobanks, firms like Chime operate primarily through smartphone apps and attract depositors with perks like no fees or minimum balance requirements.

Reactions were not all positive. Big banks and startups alike got complaints about delays that stemmed from the Internal Revenue Service misrouting millions of payments, as well as problems like not having direct deposits set up.

Yet overall, digital banks appeared to do more to transmit funds quickly, analysts said. That helped them carve a stronger toehold in the United States, where they have struggled to gain traction.

“Getting stimulus money into the hands of customers faster than incumbent banks is a big publicity win for the neo-banks,” said Sarah Kocianski, head of research at fintech consultancy 11:FS.

She predicted further customer gains: “The appeal of getting paid early will remain beyond the stimulus packages.”

Varo more than doubled customers in 2020 compared with much slower growth in prior years, Chief Operating Officer Wesley Wright told Reuters. It now handles nearly 2 million accounts.

“The pandemic brought huge growth to us and to other digital banks,” he said.

Current’s customer figures rose similarly, from 1 million users in June to more than 2 million in November. Its revenue quintupled last year.

“It’s clear Americans desperately needed this,” said Current CEO Stuart Sopp, who urged the incoming Biden administration to offer more support.

Chime also grew significantly over the past year, a spokeswoman said, declining to share specifics. Chime gave 700,000 customers early access to nearly $700 million in stimulus funds.

Though they are gaining ground, experts put neobanks’ total deposit market share somewhere in the low single-digits. For comparison, JPMorgan Chase & Co, Bank of America Corp and Wells Fargo & Co each account for at least 10% of U.S. deposits, according to government data.

Those three banks said they have processed all of the electronic stimulus payments they received to date.

Millions of Chase customers could access funds as of Jan. 1 and all valid transactions were complete by Jan. 4, the bank said. More than three-quarters of Bank of America customers who qualify for stimulus payments have received them, it said. Wells also said it has processed all stimulus payments that arrived through direct deposit.

The industry has attributed delays to problems beyond a bank’s control, including the IRS error, as well as payments sent to closed accounts or to tax preparers instead of individuals.

Those who have not yet received stimulus funds may get paper checks or debit cards in the mail.

ACCOUNT PERKS

In addition to perks like no-fee accounts, some digital banks also offer early access to recurring deposits, as well as referral bonuses or free cash advances.

When coronavirus lockdowns thrust millions of Americans into unemployment, quick, easy access to money via smartphone app became even more attractive.

Importantly, they also got more people into “primary” accounts with direct deposits, which was required to get electronic stimulus funds. Those accounts are considered the holy grail of consumer banking, because depositors tend to stick with their primary bank and seek other services over time.

About 15% of U.S. millennials held primary accounts at digital banks in December, up from 5% at the start of 2020, according to a Cornerstone Advisors survey. The consultancy defines millennials as those born between 1982 and 1994.

Drew Kolar, a 35-year-old bartender in New York, is one of them.

After losing his job in the spring, Kolar was glad to see stimulus funds appear swiftly in his Varo account. He switched from Chase in late 2019 after his account turned negative and the bank assessed fees due to student-loan payments gone awry.

“I started looking for online banks that would take me with my bad credit and without connections to Chase, and found Varo,” said Kolar. “So far, I’ve had no problems.”

(Reporting by Anirban Sen in Bengaluru, Imani Moise in New York and Anna Irrera in London; Editing by Lauren Tara LaCapra and Matthew E. Lewis)

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