Earnings Call Transcript
Chime Financial, Inc. (CHYM)
Earnings Call Transcript - CHYM Q3 2025
Operator, Operator
Good afternoon. Welcome to Chime's Third Quarter Fiscal 2025 Earnings Call. As a reminder, this conference call is being recorded. And a replay of this call will be available on our Investor Relations website for a reasonable period of time after the call. I'd like to turn the call over to David Pearce, Vice President of Investor Relations and Capital Markets. Thank you. You may begin.
David Pearce, Vice President of Investor Relations and Capital Markets
Good afternoon, everyone, and thank you for joining us for Chime's Third Quarter 2025 Earnings Conference Call. Joining me today are Chris Britt, our Co-Founder and CEO; and Matt Newcomb, our CFO; Mark Troughton, our COO, will participate in Q&A. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings release and our earnings presentation posted on our IR website at investors.chime.com. We will also make forward-looking statements on this call, including statements about our business, future outlook, and goals. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our Form 10-Q filed on August 11, 2025. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements, except as required by law. With that, I'll hand it over to Chris.
Christopher Britt, Co-Founder and CEO
Thanks, David, and thank you all for joining us. Q3 was another strong quarter for us, and I'm so proud to lead this talented team that has made Chime an industry leader in banking mainstream America. Month after month, more everyday people are choosing to move their banking relationship to Chime than any other fintech or bank. In fact, just last month, J.D. Power reported that, in Q3, more people opened a checking account at Chime than any other U.S. company. And we're still just getting started. We're up to 9.1 million active members in a market of nearly 200 million people earning up to $100,000 per year. We're at a $2 billion revenue run rate in an over $400 billion market. There is a secular shift happening in mainstream America towards digital banking that's helpful, easy, and free, and Chime is leading the way. Our strong Q3 financial and operating results demonstrate our progress. We delivered a 29% year-over-year revenue growth despite lapping the initial launch of our blockbuster new product, MyPay. We also improved our adjusted EBITDA margin by 9 points year-over-year. Both revenue and adjusted EBITDA exceeded guidance for the quarter. Driving this growth was a 21% year-over-year increase in active members to 9.1 million, a sequential increase of approximately 400,000 from Q2. Given this momentum, we're raising our Q4 and full-year guidance for revenue and adjusted EBITDA. Despite the headlines about macro risks and consumer health, we see continued resilience among our members. Our business is powered by long-lasting primary account relationships. We maintain low credit risk through our short-duration liquidity products underwritten by recurring direct deposits. Over the last decade, our business has proven to be resilient across macro cycles. In fact, Chime can shine most when times are tough. In softer macro environments, consumers often become more value conscious, and we believe that Chime offers the most compelling banking experience and the best value. Our members continue to show strong financial health with steady growth in spending among tenured cohorts, higher average deposit balances, and consistent use of our liquidity products with lower loss rates. Importantly, we're not seeing any signs of unemployment pressure within our member base. Today, I'll share some highlights from Q3 and what continues to set Chime apart, including our category-leading products, trusted brand, and cost-to-serve advantage. Starting with product. In September, we launched our new Chime Card, our latest innovation to make Chime the best checking account for mainstream America. This new card makes fee-free banking with Chime even more rewarding. With 1.5% cash back on everyday spend categories for direct depositors and a titanium card option, we're now delivering an even more premium banking experience for our members. Chime Card builds on the strength of Chime+, which offers our direct deposit members a 3.5% interest rate on savings, 8x the national average. It also offers fee-free overdrafts, access to your paycheck on-demand with MyPay, free credit building, and priority member support. We don't believe any incumbent offers consumers anywhere near this level of utility and value, including higher earners. In fact, in Q3, members making $75,000 or more annually were our fastest-growing consumer segment. The new Chime Card is a secured credit card that helps our members earn rewards while improving their credit score. Because it's a credit card, we earn 175 basis points of interchange, which is over 50% higher than our average Q3 take rate. The results in the first 2 months are promising. New members who adopted Chime Card are already using it for 80% of their spend. Portfolio-wide spend on our credit card products represents only 16% of total purchase volume as of Q3, so we're very excited about the growth potential as volume shifts to credit spend. We've also enhanced our short-term liquidity products, including MyPay. In the year since we first rolled out this product, MyPay has proven to be another essential feature that's loved by our members for its convenience and low cost. MyPay is now an over $350 million annual run rate product, with a transaction margin of over 45%. We've more than quadrupled MyPay transaction margin in just the last 2 quarters. These results are a case study in product innovation, only possible due to Chime's primary direct deposit relationships. In terms of our brand leadership, Chime continues to gain momentum, setting us apart from both legacy players and potential new entrants. In Q3, our unaided awareness in the online banking category reached 41%, up 12 points since 2023, with the fastest growth among Americans earning $50,000 to $100,000 annually. Chime now only trails the 2 largest banks in unaided awareness for online banking and is ahead of Wells Fargo, Citi, and every other national bank. And just last month, TIME released their latest national survey and ranking of the top U.S. brands by category. For the first time, Chime was ranked the #1 banking brand in the U.S. according to consumers for 2025, ahead of all major banks and fintechs, and we're not even a bank. The final advantage I want to recap is the significant progress we've made in our cost to serve. Chime's cost to serve is roughly 1/3 to 1/5 of an incumbent bank, and this advantage continues to improve. Over the last 2 years, we've reduced our cost to serve by 20% while growing ARPAM by 18%. Our continued operating leverage is clear in our Q3 financials, which Matt will discuss. With our scaled model and the growing benefits we're realizing from AI, we don't believe we need to grow OpEx nearly as fast as we have historically to fuel our growth. In fact, we expect to keep headcount flat over the next year. This should translate to significantly slower OpEx growth in 2026 versus 2025. A major contributor to our cost to serve improvement has been our investment in ChimeCore, our proprietary transaction processing core and ledger. I'm excited to announce today that we've completed our migration ahead of schedule, and we're now 100% on our own technology stack. ChimeCore sets us apart from both traditional banks and fintechs that rely on costly and often inflexible third-party solutions. Not only does ChimeCore provide efficiency gains that Matt will share, but it will continue to accelerate shipping velocity, proprietary innovation, and our AI advantage. ChimeCore allowed us to launch our new Chime Card, a key driver of growth for 2026 and beyond. And with ChimeCore fully live, it unleashes the next era of innovation for Chime, to extend our lead as the go-to banking platform for everyday Americans. Our near-term product roadmap includes a new, more premium membership tier that will launch to reward our most engaged and higher-earning members: joint accounts, custodial accounts, and investment products. And that's just some of what we have on the docket for 2026. These new innovations will give our members even more reasons to rely on Chime for all aspects of their financial lives across spending, savings, borrowing, investing, and more. I also want to share a few updates on other emerging growth areas, including our early engagement programs in Chime Enterprise. Our early engagement strategy is all about making it easier to use Chime right out of the gate and is helping us drive strong member acquisition at increasingly attractive unit economics. We've ungated our credit-building features, added more deposit options like inbound instant transfers and funding with Apple Pay. We continue to experiment with offering MyPay before members' direct deposit and have made it easier to transfer money from Chime with outbound instant transfers or our OIT service. In Q3, the combination of these new initiatives helped reduce CAC while allowing us to monetize relationships earlier and in new ways. There's more work to do, but we're also encouraged by the early signs of success converting these new Chime members to direct depositors over time, especially those who want to try before they buy. Lastly, on Chime Enterprise, I'm incredibly bullish about the impact this new business unit will have on our growth. We're seeing early traction in the employer channel, bringing Chime solutions to employees of our enterprise partners. We recently announced partnerships with both Workday and UKG, 2 of the largest global human capital management platforms. These integrations allow their employer customers to seamlessly offer Chime Workplace to their employees. In Q3, we signed several new employer partners, including Maxwell Group, Ubiquity, and Etech. While still early days for Chime Enterprise, employee adoption rates of direct deposit have far exceeded our expectations. Enterprise sales cycles can be long, but I'm excited by the momentum in our pipeline. Our business continues to fire on all cylinders and is poised to deliver an exceptional 2026. That said, we do not believe our current stock price reflects the strength of our business. So today, we're announcing a $200 million share repurchase authorization, which we expect to implement in the coming months. We continue to have a robust cash position and a strong outlook on free cash flow generation, putting us in a great position to buy back shares at attractive values while continuing to invest in the growth of our business. We are well on our way to deliver on our vision to transform the way mainstream Americans bank, helping millions achieve lasting financial progress. I'm deeply proud of this generational company we're building. We have a brand that's loved and already rivals the largest banks in the world with more consumers choosing us than any other institution. The future of banking belongs to Chime. With that, I'll turn it over to Matt.
Matthew Newcomb, CFO
Thanks, Chris. Good afternoon, everyone. Thank you all for joining us today. I'm excited to discuss our strong third quarter results and outlook. In Q3, we delivered 29% year-over-year revenue growth, and our adjusted EBITDA margin rose to 5%, up 9 percentage points year-over-year. These results exceeded our previous guidance, and with this momentum, we're raising our guidance for Q4 and full year 2025. The platform we're building at Chime gives us multiple ways to win in the large market we serve. I'd like to provide a few highlights about our strong performance across actives, purchase volume, ARPAM, and transaction margin in Q3. First, we continue to see strong new active member growth at attractive and improving unit economics. In Q3, thanks in part to our early engagement initiatives, we grew active members by 21% year-over-year, approximately 400,000 sequentially while reducing CAC by over 10% year-over-year for the third consecutive quarter. This has resulted in faster paybacks. Recent cohorts are trending to a 5- to 6-quarter transaction profit payback, a reduction from the 7-quarter payback we've seen previously. Of course, the real magic in our business is the stickiness of our cohorts for years and years beyond CAC payback, which drives an LTV-to-CAC profile of 8x or higher, powered by the consistent recurring engagement of our primary account relationships. Industry data suggests the average life of a checking account is over 15 years. Our oldest cohorts are now nearly a decade old and showing no signs of slowing down. Second, purchase volume. We have a resilient payments-based revenue model driven by our members' top of wallet, recurring and largely nondiscretionary spend. Like Chris mentioned, despite the concerns of our macro, we're seeing very consistent spend trends among our tenured cohorts. I want to quickly highlight a product enhancement that is having a positive impact on the business: outbound instant transfers or OIT. While the majority of our members use Chime as their primary account, some also maintain secondary accounts for activities like investing or peer-to-peer payments, especially those who are new to Chime. Historically, funding those accounts meant visiting these other apps and pooling funds using their Chime cards. These transactions are included in our purchase volume or PV. With OIT, members can now push money instantly to external accounts directly from the Chime app, offering a faster, more convenient member experience. OIT volume is not included in PV. We're seeing members shift volumes to this new experience. Since launching in January, OIT volume has scaled rapidly to $640 million in Q3. This mix shift to OIT tempers our reported PV growth but actually serves as a tailwind for our overall business. We earn a 1.75% fee on these OIT transactions, far higher than our take rate on debit purchase volume transactions. In Q3, purchase volume totaled $32.3 billion, up 15% year-over-year; and $32.9 billion, up 18% year-over-year, when combined with OIT volume. This drove payments revenue growth of 16% year-over-year in Q3 and 20% when combined with OIT revenue, which is included in platform revenue, a very consistent pace of growth with the first half of the year. Third, average revenue per active member or ARPAM. Primary account relationships drive our already strong ARPAM, and it continues to power higher alongside increasing levels of product attach. In Q3, ARPAM grew 6% year-over-year to $245, and we continue to see growth across every cohort, with our seasoned cohorts now at over $350 ARPAM. This growth coincides with continued growth in attach rates across our expanding product ecosystem. In Q3, 13% of our active members use 6 or more products on a monthly basis, up from 5% 2 years ago. This segment of members has an ARPAM of $466, nearly double our average active member and up 15% over the last 2 years. Said another way, not only is the breadth of Chime's opportunity massive with 9.1 million actives among 200 million everyday Americans but so is the depth. We're serving our members across multiple areas of their financial lives, and there are so many more areas left to go. Finally, we continue to make progress on transaction margin. A few highlights to call out on this front. First, as Chris mentioned, we completed our migration to ChimeCore, a massive unlock for future product velocity and continued cost efficiency. We expect this final step of our migration to increase our gross margin to close to 90% in Q4. Second, MyPay loss rates fell below 120 basis points in Q3, a more than 20 basis points sequential improvement from Q2, representing continued faster-than-planned progress toward our 1% loss rate target. MyPay transaction margin is now over 45%. Moving to the rest of our P&L. We continue to drive strong operating leverage in our business. In Q3, non-GAAP OpEx grew just 7% year-over-year, down from 14% growth in H1 and the slowest rate in years, even as we continue to put substantial growth capital work at 8x LTV to CAC. As a percentage of revenue, non-GAAP OpEx fell by 14 percentage points year-over-year in Q3, with continued operating leverage across every OpEx category. Along with our progress on MyPay transaction margin, this translated to a significant acceleration of our adjusted EBITDA margin growth, improving 9 percentage points year-over-year in Q3, well ahead of what we delivered in H1. And we expect this trend to continue in Q4, where we now expect 11 percentage points improvement to our adjusted EBITDA margin year-over-year and an incremental margin in the mid-50s, even higher than the mid-40s we guided to last quarter. More specifically on our outlook, we're pleased to raise our fourth quarter and full-year guidance, driven by continued broad-based strength in the business. In the fourth quarter, we expect revenue between $572 million and $582 million, resulting in year-over-year revenue growth between 20% and 23%. This exceeds our previous guidance, which forecasts 20% growth at the midpoint. We expect adjusted EBITDA between $43 million and $48 million and an adjusted EBITDA margin of 8%. This also exceeds our previous guidance of 6% margin at the midpoint. There are a few things to keep in mind about Q4. First, we expect to see steady progress on active member growth at attractive ROI with continued positive results from our early engagement strategies. We expect to continue to see strong growth in OIT and therefore, a continued mix shift of revenue from payments to platform in Q4. This, of course, is a positive for our financials given the higher take rates on OIT volume. As you'll recall, we are now lapping last year's launch of MyPay, which began ramping in Q3 '24. We'll fully lap the launch in Q4 '25, which is what is driving some further normalization of our top line growth rate in our Q4 guide. Finally, as part of our termination agreement with our third-party processor, Galileo, we will incur a one-time expense of approximately $33 million excluded from adjusted EBITDA. We originally expected to recognize this expense in Q1 '26, but with our ChimeCore migration concluding ahead of schedule, we now expect to recognize this in Q4. We will maintain a contractual relationship with Galileo through March 2026. For the full year, we expect revenue of $2.163 billion to $2.173 billion and adjusted EBITDA of $113 million to $118 million, above our prior guidance. So we're pleased with our strong Q3 results and outlook for Q4, but we're even more optimistic about 2026 and beyond. While we won't give formal guidance for 2026 until our next earnings call, we believe the strong progress we're seeing across the business is setting the stage for continued strong top line growth, additional transaction margin expansion, and substantially slower OpEx growth, resulting in a step-up in our adjusted EBITDA margin that is above our previous expectations. Specifically, we expect our '26 incremental adjusted EBITDA margin to be above the mid-50s we're guiding to for Q4 this year. Finally, as a reminder, our full IPO lockup ends on Friday morning, the beginning of the second full trading day following today's earning announcement. With that, I will open it up to Q&A.
Operator, Operator
And we'll take our first question from Tien-Tsin Huang from JPMorgan.
Tien-Tsin Huang, Analyst
Really nice results, guys. Happy to see it. On the member growth, I want to ask about that and what you're seeing competitively there. Any change in competitiveness? It sounds like CAC was still an improvement there, but I'm curious what you're seeing on the ground and any learnings from widening the funnel, that kind of thing.
Christopher Britt, Co-Founder and CEO
Thank you for the question. We continue to experience strong momentum and are confident in our competitive position. As mentioned earlier, we are the leading choice for individuals transferring their direct deposits, particularly for those earning up to $100,000 annually. Recently, J.D. Power confirmed our leadership in this segment. It's clear that we've established ourselves as a top brand in banking, which drives significant growth in our business, particularly through our referral and organic channels that contribute over 50% of our new active member growth. We noted a 21% growth in active members, and over the past year, we've gained 1.6 million new active members, compared to 1.2 million in the previous year leading up to Q3 '24. This reflects strong initial growth, and we’re seeing excellent conversion rates for direct deposits, which remains a key focus for us. Additionally, our early engagement strategy is having a positive effect, simplifying the onboarding process for users who may not be ready to start direct deposits immediately. Initiatives such as making funding easier, helping users build credit, and offering a version of MyPay prior to starting direct deposits are producing favorable results. I’ll hand it over to Matt to provide further insights on these outcomes.
Matthew Newcomb, CFO
Yes. The key point is that our early engagement initiatives are already positively impacting the business. We are witnessing a record number of new checking account openings activating with us right from the start. Our customer acquisition cost is decreasing, down over 10% year-over-year for the third consecutive quarter. Simultaneously, we are generating revenue at higher rates as our recent cohorts engage with us in new ways and attach to more products earlier in their time with us. This is reflected in the overall growth of our ARPAM. Specifically, for members who have not yet engaged with us through direct deposit, their average transaction profit has increased by about 20% compared to last year. Alongside the strong conversion to direct deposit among those prepared to do so from the beginning, all these factors have led to improvements in our cohort performance. Notably, our most recent quarterly cohorts are moving toward a 5- to 6-quarter transaction profit customer acquisition cost payback instead of the 7 quarters seen in previous cohorts.
Operator, Operator
We'll take our next question from James Faucette with Morgan Stanley.
James Faucette, Analyst
I want to follow up on a couple of points. It seems that payment volume per user has decreased a bit, but we haven't seen a significant increase in the rate of new users or quarterly additions. Some of this decline appears to be related to ungating, or at least that was the case before. Is that still the main factor, or are there any other considerations regarding consumer health within the user base that we should be aware of?
Matthew Newcomb, CFO
Yes. Let me touch on that. Thanks for the question, James. I think the other point to call out here is, first, number one, we're actually seeing very consistent overall transaction volumes year-to-date. The one thing that is a newer trend is the very fast adoption of outbound instant transfers or OIT. This is what we talked about in the prepared remarks a little bit earlier. This has grown even faster than our own internal expectations. So as we mentioned earlier, OIT enables members to instantly push money to secondary accounts directly from the Chime app. Historically, the only way to move funds instantly was for our members to go to their secondary accounts and pull money using their Chime cards. That's a transaction that's very similar to a purchase transaction, and it earns us interchange. The result of this is a mix shift from payments to platform revenue. And that's because the volume from the historical way to make instant transfers is included in purchase volume, whereas OIT is separate from purchase volume and captured in platform revenue. So the much better and far more like-for-like way to look at this is to take a look at combined purchase volume and OIT volume. And when you do that, what you see is that while payments revenue grew 16% year-over-year in Q3, payments and OIT platform revenue combined grew 20% year-over-year in Q3. And that's been a very consistent pace of growth compared to what we saw in Q1 and Q2. Maybe I'll pass to Chris to talk about a little bit what we see on the consumer.
Christopher Britt, Co-Founder and CEO
Yes, I believe the consistent growth that Matt mentioned reflects a broader trend in consumer health. Despite what we may hear in the news about macroeconomic risks and the wellbeing of consumers, our members are showing no signs of pulling back their spending. Approximately 70% of our members' purchases are for everyday essentials. Notably, for our long-term members, discretionary spending growth is outpacing essential spending growth. This indicates a healthy consumer who is willing to spend on nonessential items, evidenced by year-over-year increases in categories like restaurants and delivery services such as DoorDash and Uber Eats. Our members are not only choosing to order in but are also going out, utilizing services like Lyft and Uber. We're witnessing double-digit growth in well-established retailers like Amazon and Costco, along with triple-digit growth in newer platforms like TikTok Shop. Simultaneously, there are continued increases in our members' average balances, with nearly double-digit year-over-year growth. Overall, despite the surrounding noise, our data indicates that consumers are healthy, employed, and generally stable.
James Faucette, Analyst
Great. Appreciate that, Chris, Matt. And then just a quick question. The margin improvement was really impressive. And it looks like some of that is coming from the improved loss rates on MyPay. But can you give us some updated thinking on how we should be anticipating the path to margin expansion from here? You also highlighted kind of change in the move to ChimeCore, et cetera, also contributing but just trying to contextualize on what that means on a go-forward basis.
Matthew Newcomb, CFO
Thank you, James. As I mentioned earlier, one of the immediate highlights regarding margins will be the expected increase in our gross margin due to the transition to ChimeCore. Specifically, we anticipate our gross margin to approach 90% in Q4, which will also positively impact our transaction margin. Regarding MyPay loss rates, we are very pleased with the advancements we are making. The pace of improvement has been faster than we anticipated, decreasing from nearly a 1.7% loss rate in Q1 to 1.4% in Q2, and then to below 1.2% in Q3. We are making excellent strides and expect to continue this trend. We previously mentioned a target of a 1% steady-state loss rate for this product, and we are on track to achieve that in the coming quarters.
Operator, Operator
We'll take our next question from Andrew Jeffrey with William Blair.
Andrew Jeffrey, Analyst
Great progress on MyPay. A couple of questions on that product as well as instant loans. I guess, Matt, where do you think transaction margin at 1% is in MyPay? And I guess as kind of a follow-up on that, if you get there quickly, and it seems like you're on that trajectory, then do you kind of say, hey, look, maybe we're not growing this business fast enough and review sort of the underwriting criteria? What is the dynamic, in your view, as you look out on the future of MyPay? And then I just wanted to get an update on the short-term loan product.
Mark Troughton, COO
Sure, I'll address the first part of that. When a new lending product is launched, the initial group usually experiences high loss rates due to the underwriting criteria. We're observing a couple of trends with MyPay. Firstly, as these groups mature and we gather more performance data, we're noticing a natural decline in loss rates. Secondly, as mentioned, this product has been available for just over a year, and we are continuously refining our underwriting models to make more accurate loss decisions. These factors are contributing to the improvement in loss rates. We do not anticipate making changes that would compromise our gross margins, which is an important point. In fact, we see potential to further increase those gross margins over time. I’ll let Matt take it from here regarding the 1% target.
Matthew Newcomb, CFO
Yes, that reflects our ongoing margin expansion in transaction margins for MyPay. We aren't setting a specific target at this time. Additionally, transaction margin hinges on product usage and our overall revenue. We will continue to seek enhancements for this already well-received product. The key point we want to communicate today is our satisfaction with the unit economic performance and our expectation for further improvements.
Christopher Britt, Co-Founder and CEO
Yes. It's a $350 million run rate product in just a year, great margins, and we've done this while being the lowest cost product in the market with lots of daylight between us and the pricing of other offerings, so really excited about this one.
Andrew Jeffrey, Analyst
Okay. Should we expect to hear more about the instant loan product, the short-term loan product, next year?
Mark Troughton, COO
Yes. I think instant loans are something we have been working on for 12 to 18 months, and we have rolled it out cautiously. We are very excited about the progress with that product. It's currently our highest NPS product, with an NPS of around 80 points. Our members love it. We plan to continue to roll it out and expand, although we are not providing separate guidance on it at this stage.
Operator, Operator
We'll take our next question from Adam Frisch with Evercore ISI.
Adam Frisch, Analyst
Really nice job on the quarter here. Some encouraging nuggets in the press release about Enterprise showing direct deposit levels above expectations. It's obviously something that can drive a whole lot of goodness on the other side of that. I know it's still early days, but can you provide some color on the TAM from the 2 partnerships mentioned? Maybe some color on the sales pipeline? And any initial revenue and profit indications of members coming in from this channel?
Christopher Britt, Co-Founder and CEO
Yes, Mark oversees the Enterprise channel. So Mark, why don't you take that one?
Mark Troughton, COO
Thanks, Chris. Adam, as Chris mentioned earlier, we are very enthusiastic about the overall progress in the Enterprise sector. To provide some context, we launched the product at the end of April and beginning of May, so it is relatively new. This is a business-to-business approach. We have rolled out the product starting with smaller employers to validate the adoption model and ensure that our go-to-market strategy and employee engagement efforts are operating effectively. I believe we have succeeded in this endeavor. Across these three employers, we are experiencing adoption rates that surpass our expectations and those of other market providers. We attribute this success to our competitive advantages, as we are presenting a more comprehensive value proposition around financial wellness rather than solely focusing on the earned wage access product. In addition to those three partners, we have recently established strategic partnerships with Workday and UKG, which we believe are significant as we seek to access employer and payroll data. These partnerships will be crucial as we build new employer relationships. We are excited about these developments. The sales pipeline appears promising, and our value proposition is resonating well in the market, which keeps us optimistic about the channel. We are not yet in a position to offer separate guidance regarding the Enterprise sector. Given that this is a B2B model, the sales cycles tend to be lengthy, especially with larger enterprises that could significantly impact our results. However, we believe that in the medium to long term, this sector will be a substantial driver of growth for us, with a considerably lower customer acquisition cost compared to our consumer channel.
Adam Frisch, Analyst
Okay, great. I just want to add a quick note. Congratulations on getting ChimeCore launched and operational ahead of schedule. That's impressive. Matt, could you share your insights on the expected margin impact? I assume it has been somewhat noted in previous quarters as you've transitioned some elements, but how do you see it evolving in the coming quarters? I'm also looking forward to future discussions where we can explore ChimeCore further, as I believe you'll achieve more efficiency and effectiveness thanks to that proprietary platform. Once again, congratulations on this achievement.
Matthew Newcomb, CFO
Yes, thanks. We're excited to have reached this significant milestone with ChimeCore. As I mentioned earlier, this really sets the foundation for the next generation of product development for us, which we are very enthusiastic about, along with improved cost efficiency. We now expect an increase in our gross profit margin to nearly 90% starting in Q4, due to the transition to ChimeCore and the reduction in our transaction processing costs, which are a significant part of our cost of revenue. Now, I'll hand it over to Chris to explain more about what ChimeCore enables for our new product development.
Christopher Britt, Co-Founder and CEO
Thank you. I truly believe that ChimeCore will be recognized as a significant factor that differentiates us from many traditional companies and other fintechs in the coming years. Having complete control over our technology stack is a major advantage that enables us to introduce exciting new products. The first of these is the Chime Card product, which we have started rolling out to new members and are currently extending to our existing member base. We anticipate that its impact throughout this year and into 2026 will be quite promising, especially when considering the opportunity to shift more spending from debit to our secured credit product, which aids in building credit while offering great rewards. We are confident that ChimeCore will facilitate a faster rollout of new products and services, including enhanced premium membership tiers, delivering additional value to consumers. In return, this can result in them directing more of their paychecks and spending towards us, and we plan to reward them with the new premium tier. We will also be introducing joint accounts, custodial accounts, and investment services, all of which can be powered by this essential platform we now control. Therefore, we believe that our product growth potential looks very promising as a result of this investment.
Operator, Operator
We'll take our next question from Timothy Chiodo with UBS.
Timothy Chiodo, Analyst
This is actually a little bit related there to Adam's question in a way around, as we get to the Chime Cards, so the secured credit card offering. You mentioned the higher interchange. You mentioned allowing your members to improve their credit score, and there are some stats on the website around that. It's pretty impressive. So it seems like a great win-win product for both the members and for Chime. As we've talked about in the past, there's always this concept of the graduation. So someone comes on to Credit Builder. They're a great customer. They've improved their credit score, and now their score's higher. And they might want to move on to a traditional credit card offering. And not asking you to preannounce future products, but to the extent you could just talk about maybe ChimeCore can enable a traditional credit card or other concerns or reasons why you would or would not want to offer a traditional credit card to the members?
Mark Troughton, COO
Yes, Timothy, I’ll address that. As Chris mentioned, our main focus is to get as many of our members as possible onto the Chime Card, which we see as a significant opportunity. However, we recognize that there is considerable demand among our members for a more traditional credit card that provides high levels of liquidity and rewards. Furthermore, we believe that our access to superior transaction data gives us a unique advantage in underwriting, as we are able to see all the inflows and outflows of our members. Since we receive direct deposits into our accounts, we are also at the top of the repayment stack. These two factors give us a considerable edge in offering an appealing credit card to our members. While we plan to pursue this over time, it should not be seen as a major contributor for 2026. Additionally, we have previously stated our commitment to remaining a payments business, and any developments in this area will be executed in an asset-light manner that does not add significant overhead to our balance sheet.
Christopher Britt, Co-Founder and CEO
One final point to mention is the graduation risk you discussed. We want to highlight that our newest active member cohorts are experiencing the fastest growth among consumers earning between $75,000 and $100,000. We believe that our product continues to improve, particularly for those who engage in more transaction and deposit activities with us. We will keep focusing on that and consider future long-term products as Mark mentioned.
Operator, Operator
We'll take our next question from Will Nance with Goldman Sachs.
William Nance, Analyst
I would like to ask about the rollout of the Chime Card product. Can you discuss two things? You mentioned some early progress with the rollout. What are your expectations for attach rates among new cohorts and how is the Chime Card prioritized for new customers? It is understood that you expect the attach rate to be relatively high for new cohorts and that this will be the primary experience presented to customers. Can you confirm that and provide insight into the current attach rates? Additionally, you mentioned the 175 basis points on the card for interchange, which was very helpful. Could you share a rough estimate of the rewards cost for direct deposit customers and clarify whether the rewards will be reflected in transaction margin or categorized under sales and marketing?
Christopher Britt, Co-Founder and CEO
Thanks, Will. I'll start. Yes, we initially rolled this out only to new members, and we're really encouraged by the results. For those who choose the new Chime Card, we’re seeing 80% of their purchase volume within the Chime ecosystem coming from credit spending. This is a very exciting development for us. We also have rewards and more premium versions of the physical card that are quite appealing. It's still early in the rollout to our existing member base, but we're actively working on it. I'm not sure how much more detail you want in terms of expectations.
Matthew Newcomb, CFO
Yes. Will, as it relates to your second question around the rewards expense, rewards are actually contra revenue. So the 175 interchange rate that we were referencing earlier is actually already net of our rewards expense. That's the sort of all-in take.
William Nance, Analyst
That's great to hear. I appreciate the details on OIT. Could you discuss the attach and adoption rate? It seems like we should consider the ongoing mix shift dynamic and the payment volume per active account in relation to this figure. Are you observing the substitution effect stabilizing, with what was previously a pull now fully transitioning to a push? Or do you anticipate that to grow rapidly, outpacing sequential changes in payment volume in the upcoming quarters?
Matthew Newcomb, CFO
Yes. We do expect this to grow faster in the upcoming quarters. In other words, we anticipate a continued shift from payments to platform. This is a product used by most of our customers, but it currently has a smaller user base. It has grown rapidly, and we believed it was important to clarify its impact on overall purchase volume rates. We are observing that some of our newer cohorts are adopting this at higher rates than our existing members. Therefore, we expect this shift to keep going for the next few quarters.
Operator, Operator
We'll take our next question from Darrin Peller with Wolfe Research.
Darrin Peller, Analyst
Nice job on the quarter. As a follow-up to attach rates and considering ARPAM, now that you're approaching the anniversary of the initial rollout of MyPay, could you help us understand how to anticipate growth in ARPAM in Europe moving forward? It would be useful to hear both from a financial modeling standpoint and in terms of the various products that can contribute to this growth, particularly those that you find most promising for the coming year.
Matthew Newcomb, CFO
Yes. Well, maybe I'll touch just very briefly on sort of the near-term trajectory in ARPAM, and then I'll hand it over to Chris to talk about some of the opportunities to continue to grow ARPAM over time. So the first thing I'd say is, as we mentioned, we are lapping the initial rollout of our really blockbuster product, MyPay, this quarter. You should think about Q3 as sort of a partial lapping. We began rolling out MyPay in Q3 of last year, whereas Q4 is when we fully lapped the launch. And as a result of that, you should expect ARPAM growth just to moderate a bit in Q4 relative to Q3. I would say, though, overall, at the cohort level, we continue to see very strong ARPAM growth. Our members are continuing to attach to more products over time. That coincides with continued growth in ARPAM by cohorts, across every cohort, with our most tenured cohorts now at over $350. Let me pass to Chris to talk about some of the other product opportunities we're excited about.
Christopher Britt, Co-Founder and CEO
Yes. As we show in the supplemental pack, you can consistently see that as our cohorts age, the ARPAM increases. What we appreciate about this increase is that it results from greater engagement, more spending, and capturing more deposits over time. With the higher monetization of card transactions, we believe there’s potential for this trend to continue upward. Overall, we mentioned during the road show that we offer the best suite of products for the mainstream everyday consumer, and we also have the lowest-cost products. This gives us numerous opportunities because there remains considerable room between the pricing of many competitors' products and ours. We will continue adding new products to enhance engagement, and we expect these to be competitively priced. We are truly excited about the potential to drive more engagement and revenue over time.
Darrin Peller, Analyst
What's the latest on MyPay day 1? Just a quick update, if you don't mind, and then we'll turn it back to the queue.
Christopher Britt, Co-Founder and CEO
MyPay day 1 is a key part of our early engagement strategy aimed at making it easier for new users to get started. While we don't want to overemphasize this opportunity, the initial results are encouraging, though still at a limited scale. We believe that by providing easy account funding options, enabling various ways to withdraw money with OIT, and offering our P2P service, we can give users the chance to try our product, which should increase the likelihood of them becoming long-term primary account holders. We plan to continue testing the MyPay day 1 experience for those without a direct deposit setup, and we will introduce additional trial experiences as well. However, there are no significant updates to share at this moment, as the initiative is still in its early stages.
Operator, Operator
We'll take our next question from Sanjay Sakhrani with KBW.
Vasundhara Govil, Analyst
This is Vasu Govil for Sanjay. Maybe could you just comment on the competitive environment a little bit? I know there are a number of different providers that are sort of trying to target the paycheck-to-paycheck consumer with short-duration loans for customer acquisition. Can you tell when your customers are engaging with any of these third-party platforms? And anything you sense in terms of change in competitive intensity in the market?
Mark Troughton, COO
I'm glad to address that. To start, our main competitors are the big banks, which hold the majority of primary account relationships and represent our primary competition. When comparing us to other fintechs, we are significantly larger than all the others combined in terms of primary account relationships at this time. So our primary focus should be on large banks. We're currently only 3% penetrated in our total addressable market, indicating a lot of potential ahead. We keep an eye on smaller fintechs that are reaching out to our members, but very few are actually making substantial progress in gaining primary account status. Some are offering liquidity services that compete with our products like SpotMe or MyPay. However, the rates they offer are considerably higher than what we provide for MyPay and SpotMe. While we do notice some members using these additional services alongside what Chime offers to access more liquidity, we are confident in our position since we are prioritized for repayment. We plan to maintain very competitive rates. As Chris mentioned earlier, even J.D. Power has confirmed that more members are switching to Chime than to other services, and this trend is ongoing. Therefore, we do not expect these offerings to affect our growth in primary account relationships.
Vasundhara Govil, Analyst
And just for my follow-up, if I could ask on the model for 4Q as we're thinking about new account adds versus volume growth. Sort of anything to be mindful of from a seasonal perspective that you would tell us?
Matthew Newcomb, CFO
In Q4, we notice some seasonality in our business, particularly with Q1 and Q2 influenced by tax refunds. That’s when we typically see the most fluctuations in our metrics, such as purchase volume per active user, average revenue per active member, and new account additions. While Q4 does show a slight increase in spending per active member due to the holidays, it doesn’t reach the seasonal highs we see in Q1. Overall, Q4 is a fairly standard quarter for us, and we are enthusiastic about continuing to grow in terms of active users and purchase volume.
Operator, Operator
We've reached our allotted time for questions. I will now turn the call back to Chris Britt for additional or closing remarks.
Christopher Britt, Co-Founder and CEO
Thanks so much. I really want to appreciate everyone and thank you all for joining us today. We look forward to seeing you all out on the road hopefully sometime soon.
Operator, Operator
Thank you. This does conclude today's meeting. Thank you for your time and participation. You may disconnect at any time, and have a wonderful day.