Down Arrow Button Icon

On a Thursday morning in mid-October, Spencer Kremin stopped at a Walgreens in New Haven, Connecticut, to pick up a couple items. But as he was using his Chime card at the counter to get cash back for his $1.75 bus fare to get to his job as a training ambassador at Amazon, Kremin’s card was declined. After trying the card again at an ATM, it was declined a second time. Confused, he checked his Chime banking account app—”Nothing. It was just a [blank] screen,” he recounts to Fortune.

As a fairly new user of digital bank Chime, Kremin was first intrigued by the fintech’s no-fee accounts, early paycheck advances, and word-of-mouth recommendations. “A lot of people I work with use it,” he says. But the company’s outage on this particular Thursday had a pretty major impact on his week.

Unable to access his account for the bus fare, “I had to miss a whole day’s pay,” he says. And Kremin wasn’t the only Chime customer left out in the cold. Service outages affecting the company’s roughly 5 million customers left many not only disgruntled and concerned—but stuck at checkout lines, gas pumps, and restaurants, unable to access their money.

Kremin says he had plenty of company on Twitter where Chime customers were commiserating. “One lady bought four tires and she couldn’t pay for them, and people were getting the [police] called on them in restaurants,” Kremin recalls. Part of the problem is that one of Chime’s key demographics happens to be people who, like Kremin says, live paycheck to paycheck—and for whom the loss of a day’s wages truly stings. From Wednesday, October 16 through Friday, October 18, cards were completely unavailable for transactions for a total of 4.5 hours, but other services (including the mobile app) were also intermittently unavailable during those days, the company said.

Chime has since announced that the cause of the problem was a database malfunction that resulted in card processing cutting out at the digital bank’s third party processor Galileo Financial Technologies (the company servicing the likes of Robinhood and Revolut, to name a few). And Chime was quick to apologize.

“I’ve personally written an email to our members and asked for feedback, and of course we’ve got people who’ve responded and said, ‘You really put me in a bind,'” Chime’s CEO Chris Britt tells Fortune. “Those stories really hurt us, we feel terrible about it.” Britt (and Chime) apologized to customers, owning that “we understand that we put [our customers] in [a] really tough situation as a result of this outage,” Britt told Fortune.

As of the following Saturday morning at around 2 a.m., the bank’s core services were back online. But it wasn’t just the isolated outage that has some customers—and even analysts—concerned. As a company that has grown from around 1 million customers to around 5 million in the past year and a half, Chime’s meteoric rise in popularity (and the concurrent influx of venture capital funding) illuminates some of the growing pains fintech upstarts can face when growth comes so quickly.

Rapid growth

The digital bank has grown stratospherically in its short life. Founded in 2013, Chime had raised a total of $307.5 million in funding as of March. That includes some $200 million from a Series D funding round led by DST Global that month, according to PitchBook, with 38,279,710 shares acquired at $5.22 apiece. An upcoming funding round, reported in October, would give the fintech a valuation of around $5 billion, according to PitchBook data.

But perhaps the more staggering figure is the number of customers Chime has been able to garner—and how quickly.

The San Francisco-based startup first reached the one-million-account mark after four years, in May 2018. But since hitting that landmark, Chime has dramatically increased its users, to around 5 million as of October. And according to observers like William O’Neil’s Dean Kim, an analyst who covers fintechs like Square, that growth pace might be part of the problem.

“Chime has grown tremendously fast, and unless the underlying processor … is fully equipped to handle that growth, a lot of things can go wrong,” Kim tells Fortune. Kim says the outage at Galileo, Chime’s third-party payments processor, sparks its own questions too: “I think this calls into question the readiness of someone like Galileo to tackle such a high-growing [company] and a company that’s getting bigger and bigger.” (Galileo said in a statement that they understand they are “a mission critical part of our clients’ businesses” and that “[the Chime outage] highlights the importance of services our clients deliver to their customers and reinforces our determination to earn and keep our clients’ trust every day.”)

Infrastructure challenges

Inside Chime, as at many startups, all eyes have been on growth. Chime has expanded to some 230 employees as of November, based primarily in San Francisco (the company’s headquarters) and some in Chicago. Chime’s key executives—CEO Britt and CTO and co-founder Ryan King, who was previously the VP of engineering and COO at Plaxo (a social networking site founded by infamous Silicon Valley entrepreneur Sean Parker)—were seen as a cohesive, tight-knit leadership team, according to one former employee.

Outside of the C-suite, however, some former employees have remarked that the company’s rapid growth may be affecting certain areas. One review on workplace review site Comparably simply noted their experience was “hectic at best,” while others on job hunting site Glassdoor voiced qualms that there was supposed “mind-changing” by executive staff that created problems in completing tasks quickly. Other issues flagged on these sites were high churn in the product and engineering staff, and too much focus on “going fast” versus using a judicious approach to new user experiences, although the majority of former employees on these sites and who spoke to Fortune had an overwhelmingly positive experience at the startup.

Chime-Bank-App — Customers have chosen Chime for the lack of overdraft fees or the chance to access their paycheck advances up to two days early.

As with many startups, Chime’s growth has largely been focused on scaling up and building infrastructure for optimum performance—and not necessarily in scaling for disaster scenarios, an early investor in Chime with knowledge of the situation told Fortune. The company’s customer service operations, for example, were staffed up to handle daily business, but not necessarily for a crisis. (The company acknowledged its customer service operations were overwhelmed during the recent outage.) Still, outages like Chime’s are not uncommon in the financial world (even traditional banks like Capital One and Bank of America have experienced outages recently)—and the company has been quick to own (and begin fixing) any problems. Chime has “a SWAT team on every angle” to ensure further protections are put in place to safeguard against a repeat, the investor with knowledge of the situation told Fortune.

Chime’s October outage fell largely on the shoulders of their third-party payments processor, Galileo Financial. The early Chime investor told Fortune that the initial decision to go with Galileo was the best decision “at that time,” although Chime does build a lot of their tech in-house. While Chime’s Britt recently denied any plans to move processing in-house, the investor speculated because outages in general can shake confidence, that those discussions may be happening sooner than later.

Indeed, one universal problem all startups face is the question of who to partner with—and in the fintech world, pressure to grow quickly often means that going at it alone isn’t feasible. It’s very common for fintechs (and especially ‘challenger’ banks) to use outside processors to begin growing sooner.

To be sure, Galileo has been around for almost 20 years, and services some fintech heavy hitters (think Robinhood, which had over 1 million more users than Chime by the end of 2018). But Chime’s ever-ballooning size may pose something of an issue as the digital bank’s infrastructure grows. Britt says Galileo’s emergency backup systems, which are designed to kick in in the event of an outage, took longer to get up and running than either Chime or Galileo anticipated. “Obviously we’ve been spending a lot of time with our processing partner, and we’ve identified an approach to make sure that we minimize any risk of disruption going forward, so we feel very confident about the plan that our technology teams have developed,” he said. According to reports from Chime, the outage was only one of several Galileo has experienced, some at Chime, in the past several months (most were not as severe).

The structure of many of these challenger bank startups (using third party processors) was designed to help companies come to market faster and begin accumulating customers, Sarah Kocianski, the head of research at 11:FS, a digital banking consultancy, told Fortune in a note. Historically, “however, these third parties proved unreliable with some of them going down frequently, leaving customers frustrated and the banks were left with the job of trying to explain what had happened when it wasn’t their fault.” Kocianski says that Chime is facing this same issue.

Although it’s often the banks themselves that have to answer to disgruntled customers, those like Kocianski maintain “the main casualty here might well be the [third] parties,” as consistent outages may motivate companies like Chime to take things in-house.

A changing landscape for startups

But there’s another trend afoot, one which has been magnified by the enormous amounts of private capital swelling startup coffers. There was a time not so long ago that startups had at least some breathing room to test their systems. William O’Neil’s Kim points to other examples of companies like PayPal, Square, and FIS Global; these companies, he says, have “been around for many, many years and they have deep resources to really strengthen their IP platform as well as security.” In fact, Kim notes that since PayPal did business with eBay years before going public, they were “able to iron out all the difficulties in their process,” so when they did expand to the public, “their internal systems [were] pretty rock solid.”

Today’s startups are under pressure to scale up quickly and win customers, perhaps even before they’ve worked through the tech glitches.

Security with third party processors is an industry-wide concern, and for those like Luvleen Sidhu, the president, co-founder and chief strategy officer at mobile-only BankMobile, a good track record is key. BankMobile (which focuses on servicing college students’ finances) uses what Sidhu jokes is a “boring core” with FIS to process their transactions. And the founder says the decision to use the “legacy core” hinged on “the reliability, the robustness, the years of having a working, functioning core.” Sidhu emphasizes that it is crucial to run vigorous testing and disaster recovery systems testing to ensure something like Chime’s massive outage doesn’t happen to them.

“You have to perform,” Sidhu tells Fortune. “If you are using those third parties, [you need to ensure] that they’ve been around the block and that you can have that confidence—because no matter how much trust you build in messaging and in communication with your customer service, nothing will replace having a good, solid product that actually performs over time.”

The challenger bank quandary

While customers continue to flock to “challenger banks” like Chime, drawn in by the lack of overdraft fees or the chance to access their paycheck advances up to two days early, the issue of reliability is a big one.

Neobanks like Chime and BankMobile are FDIC-insured, just like traditional banks, adding another layer to their supposed trustworthiness (as 11:FS’ Kocianski puts it, “if they trust the big banks, they have no reason not to trust the new market entrants”). Chime also partners with Bancorp Bank for their banking services.

But as digital-only banks continue to grow and gain customers, the responsibility will increasingly be on their shoulders to ensure the security and reliability of their services. While fintechs and traditional banks are subject to the same regulations, William O’Neil’s Kim suggests the Chime outage was “an unfortunate event because this really opens up a huge can of worms now” for regulators to look into.

As Gil Hecht, founder and CEO of Continuity Software, a software company that helps companies prevent outages and data loss, says, “Regardless of the regulation, fintechs and digital banks should take a closer look at their ability to recover from an outage and resume operations without affecting their customers.”

Chime has since taken steps to increase testing and improve infrastructure with their payments processor Galileo in recent weeks, CEO Britt told Fortune. Since the outage in October, Britt says Chime has amped up its capacity and stress testing of Galileo’s systems and infrastructure, as he says there is now a “heightened awareness to performing them in a more rigorous way given the size and the pace of growth that we have.”

But for Spencer Kremin, who told Fortune he has since withdrawn his funds from his Chime account, the lack of a physical location to turn to for help during an outage can chip away at trust altogether.

“In terms of being able to go to an actual brick and mortar building and talk to an actual human in case of an emergency, that is a lot more comforting than all the sudden, ‘oh, our phone line is down, our online chat bot is down.’ You basically can’t talk to us, that is what they were saying,” Kremin says.

Since the outage in October, Kremin noted that Chime added a company-wide compensation of $10 in each customer’s account who had been affected by the outage, and raised the overdraft limit by $25. But he says he hasn’t used his account much since.

The “challenger” banks wanted a challenge, and it appears now they have one: convincing customers like Kremin to give them another shot.