It's official: Varo Money has national bank charter
The i's have been dotted and the t's crossed on a national bank charter for Varo Money.
CEO Colin Walsh and Brian Brooks, the acting comptroller of the currency, will participate in a signing ceremony at Varo's offices in San Francisco at 10 a.m. Pacific time on Friday, both sides said. Varo is the first fintech provider among several similar applicants to obtain a national bank charter.
Varo Bank N.A. had received conditional approval from the Office of the Comptroller of the Currency in September 2018, provided it met several criteria — including an OK from the Federal Deposit Insurance Corp., which it obtained in February of this year. The company now has official approval in hand from the OCC, FDIC and Federal Reserve Board.
It's been a three-and-a-half-year journey, and Walsh says the company has filed more than 5,000 pages of paperwork.
“It’s a historic thing,” Walsh said. “We're excited to be the trailblazer.”
Brooks described his agency's action as a milestone.
“Granting a national bank charter to Varo marks an evolution in banking and a new generation of banks, born from innovation and built on technology intended to empower consumers and businesses,” Brooks said in a news release issued Friday.
Varo Money launched in 2015 with the help of a partner, The Bancorp Bank. It provides a fee-free checking account with feeless overdrafts of up to $50 and a debit card. It tries to help smooth out users’ cash flow by giving them early access to funds. This is something most of the challenger banks offer — users can access their next paycheck as soon as the bank gets the notice of payroll, rather than having to wait for the funds to clear the system. It has 2 million users.
Though Walsh is now officially a banker, he remains a strong critic of banks. For instance, he says the traditional financial system has underserved millions of Americans. He acknowledges that in recent months, banks have offered forbearance and deferral programs and loaned money through the Paycheck Protection Program.
But, he said, “I don't think banks have aggressively moved away from some of their fees and charging practices. If you fall below a certain minimum, you're going to still get hit with a $12 or $15 fee each month, which for people that are just struggling to survive, all of that adds up. A few banks have done something about overdraft fees, but many have not.”
During the pandemic, Varo Money quickly repurposed its app to be able to recognize U.S. Treasury checks and did not place any hold times on those checks. It added staff to its service operations so that more customers could get through. It worked with fintechs like Steady to help gig workers obtain more work. Its customer base has grown 200% since March.
Now that it’s a bank, Varo will be able to do more. For one thing, it will be able to offer credit products like short-term loans, credit cards and eventually home financing.
“That whole range would really help people onto the credit ladder,” Walsh said. “There are 47 million credit invisibles out there that don't even have a credit score.” Walsh plans to use alternative data and build models to assess such users.
It will be able to help people automate savings. It may offer certificates of deposit and micro investing.
“There's also the innovation that we can bring in terms of design and some of the technologies around how we design our app, how we build our brand, because we're not partnering; we're not a white label sitting on top of another bank,” Walsh said. “We are our own bank. We can control our destiny, we can control our identity.”
Varo will have to buy its customers’ accounts from The Bancorp Bank and enter them into its own core system, Temenos Transact. This should be done by the end of the year, Walsh said.
Walsh liked the fact that Temenos’s system is real-time and driven by application programming interfaces. The Varo team has also built technology that works with the Temenos software, such as its own customer interfaces and a data lake.
Walsh is thinking about how to use technologies like artificial intelligence and machine learning and how to participate in open banking.
Varo got a famous investor to offer a quote in its press release Friday — the rock star Bono, who is a cofounder of The Rise Fund, a $5 billion global impact investing fund committed to achieving positive social and environmental outcomes alongside competitive financial returns.
“I've met him. He's great,” Walsh said. “He's a real believer in what we're doing.”