UK-based chatbot savings app Chip has raised $1.5 million in equity crowdfunding platform Crowdcube. The fund raised is part of a larger $3.2 million funding round, which is part of plans to apply for a banking license.
Getting a banking license will give the startup more flexibility regarding the kinds of products it can offer in the future. It would permit Chip to begin lending out a portion of customer deposits in order to power a future alternative to your bank’s existing overdraft, with a potentially lower and more flexible interest rate.
The savings app, that plugs into your bank account and lets you automatically save for a rainy day has begun beta testing this service.
But currently for Chip to officially offer the service to customers the startup has to effectively re-sell existing financial products that already exist wholesale. This is limiting how much product innovation the startup can introduce.
Basically, Chip has come to the conclusion that it needs to be a bank, at least in the regulatory sense, in order to beat the banks.
“In order to offer the customer a 10x better product experience, you can’t just resell them the existing market. All that makes you is a slightly better money supermarket! We learnt this summer that customers love the smart credit functionality but we can’t make it viable within the existing wholesale funding market,” Chip CEO Simon Rabin told TechCrunch.
Rabin thinks the company can genuinely build the best savings account in the world that helps customers save, reduces costs on borrowing and earn the best rates in the market with a banking license.
It is reported that the average U.K. adult saves 1.7 percent of net income, yet spends 3.4 percent of net income servicing credit card and overdraft debt. Chip is determined to build a product that inverts those numbers.
Chip applying for a banking license could possibly create a wave of challenger banks in the U.K. who aren’t seeking to own the customer relationship through the current account but instead are building out their niche value proposition.
Chip was founded in 2016 by Rabin and Nick Ustinov.