Varo receives US national bank charter
Varo is the first consumer fintech to receive a new national bank charter from the US government, according to Bloomberg.
The fintech joins only a handful of recipients since the 2008 financial crisis.
The announcement on 31 July lets the company offer a full range of services backed by the Federal Deposit Insurance Corporation (FDIC).
Varo Money chief executive officer (CEO), Colin Walsh, encountered scepticism when his technology start-up set out five years ago to become a full-service digital bank. “Yeah, right, good luck with that,” he recalls a future partner saying.
Varo, which launched in 2015, provides no-fee checking and savings accounts with no overdraft fees through its mobile application.
The national charter will allow Varo to expand its services, into credit and cash-flow management.
Varo Bank will serve as the firm’s new banking arm, with Varo Money becoming its holding company.
Varo agreed to buy the accounts of its 2 million customers from Bancorp, which had housed them. Bancorp will continue to provide some services to Varo during a transition period.
“Varo coming in as a full national bank, with an already proven market fit and massive demand for more-affordable digital-banking solutions, is a very exciting moment,” Walsh, the company’s founder, said in an interview.
The granting of the Varo charter is a “come on in, the water’s fine” moment for other fintechs, acting comptroller of the currency, Brian Brooks, says in an interview.
“It shows that we know how to do this, and that we can look at companies that grew out of tech and incorporate them seamlessly into the banking community,” Brooks says.
Entry into the national banking industry by fintechs and other challengers has met push-back.
The New York Department of Financial Services pursued legal action against the Office of the Comptroller of the Currency for offering special-purpose charters for non-depository fintechs.
Brooks says charters for fintechs don’t necessarily mean they’re non-depository, and some companies like Varo will choose to fund themselves through deposits.
“Fintechs come in all shapes and sizes, and the bank charter is flexible enough to accommodate multiple varieties,” he says.
Varo’s charter is likely to embolden other fintechs who have been watching its application to pursue a similar route, says CEO Walsh. “But it’s a lot of hard work.”