Chris Britt, CEO, Chime Source: Chime

Chime, the leading branchless bank in the U.S., is in the midst of a service outage that has left millions of customers without access to their accounts. Issues cropped up Wednesday, leaving users stranded at restaurants, parking garages and gas stations, unable to use their debit cards or pay their bills, according to interviews and complaints posted to the bank's Twitter account. Card transactions and ATM withdrawals have since been restored, and employer deposits are posting, Chime said Thursday in a statement. But the main touchpoint for Chime's 5 million users – its mobile app and website – is still down after more than 24 hours. "I completely acknowledge the fact that we feel like we let" users down, Chime CEO Chris Britt said in a telephone interview. "One of our core values is being member obsessed. Our customers love being connected, they want to know what their balances are in real time. And when people don't have access to the app, we understand how incredibly frustrating that is."

The outage, reportedly Chime's third since July, comes at a sensitive time for the San Francisco start-up. Chime has been experiencing torrid growth lately, going from 1 million users in mid-2018 to more than 5 million this year. That has put the firm in the vanguard of an industry that is beginning to take off in the U.S. after the rise of so-called challenger banks in the U.K. and Europe. Chime was in the process of raising new funding from investors at a valuation of at least $5 billion, Axios reported earlier this month. Taking advantage of frustration among customers of big banks, it has lured users with the promise of zero fees, a two-day advance on paychecks and a seamless experience. But the thesis of Chime and other startups has been that physical branches were an unnecessary relic of the days when banks gave free toasters with new checking accounts. Now, customers are beginning to question whether that thesis rings true anymore. "I can't access anything; if I wanted to transfer money out of my savings account, how am I supposed to do that?" said Bruce Banko, who works in customer support in St. Petersburg, Florida. "I tried calling them but I couldn't get through." Banko sent this screenshot of his Chime mobile app: It's unclear if the outage will impact Chime's valuation, and Britt declined to comment on anything to do with his bank's fundraising effort. The outage was caused by an issue with the database of payment processor Galileo, according to people with knowledge of the matter. The Salt Lake City, Utah-based software company said it began experiencing an "operational incident" on Tuesday aﬀecting its ability to "support transactions for a small number of our clients and their customers." "We are actively working to restore full mobile application functionality, which is currently unavailable or slow to respond," Galileo said in a statement. "We are committed to actively resolving the situation and returning to normal operations as quickly as possible." Galileo announced a $77 million funding round on Thursday, led by Accel. The company connects banks to credit card processors through APIs, and counts Robinhood, Monzo, Revolut, Varo and TransferWise as customers.

Hardest hit

While Galileo serves a constellation of fintech firms, it appears that Chime has been impacted the most. That calls into question the robustness of the firm's technology stack, or perhaps its reliance on vendors. Galileo customer Revolut said that "no services were affected". Varo, another client, said it "experienced a minor disruption in processing" but that these issues are now mostly resolved. Monzo and Transferwise did not immediately respond to CNBC's request for comment. Many challenger banks lean on third parties to connect to a payment network. It reduces the complexity of integrating directly with a company like Visa or Mastercard. But that can come with issues around downtime and outages. "If this third party goes down, then to the user of the app, in this case Chime, the card no longer works," said Simon Taylor, head of venture at fintech consulting group 11FS. "As companies like Chime hit scale we're likely to see these outages become more common." Service outages were especially common two years ago in the U.K., where challenger banks like Monzo and Revolut gained popularity after the financial crisis. Those outages eventually caused fintech companies to take their payment processing in house, according to Taylor. Chime and many of its digital banking peers partner with FDIC-insured banks instead of getting a banking license themselves. It's a popular set up for fintech companies: The banks handle the federally regulated side while start-ups focus on their users' experience. Chime works with Bancorp Bank, and earns revenue from debit card transaction fees paid by merchants.

'We feel horrible'