The Charter…Trap?
Chime confirmed it will (at some point) become a bank. Mercury got conditional OCC approval on its national bank charter and raised $200 million at a $5.2 billion valuation in the same week. The narrative is that bank charters unlock better economics, lower funding costs, and a more defensible business model. All of that is basically true.
And yet.
Chime's revenue multiple went from roughly 30x in 2021 to 7x when it went public last year to roughly 3x today.
Mercury's post-fundraise multiple sits around 8x.
SoFi, which went the distance and became a bank in 2022, trades at 2.2x price-to-tangible book value. LendingClub (which became a bank in 2021) is around 1.25x.
Both those ratios (which are very different from the simple revenue multiple ratio that we grade tech companies on) are good for banks (SoFi’s is quite good) but far away from the revenue multiples they used to trade at.
The pattern is consistent: each gate a company passes through, from private to public, from non-bank to bank, compresses the multiple further, regardless of what it does to the underlying business. The business may get better, but the story gets trickier to tell.
Bank investors don't ask what a business could be worth in ten years. They ask what it could be liquidated for tomorrow. That skepticism is baked in, which is why fintech companies (especially the public ones) are often reluctant to embrace the charter, despite its obvious advantages.
Alex and Jason break it down: https://podcasts.apple.com/us/podcast/fintech-recap-charters-baas-the-fed/id1636532588?i=1000770949897