- Key insight: Varo's latest call report reveals its financial health is deteriorating, with total deposits cut in half to $160 million and quarterly net losses deepening to $71 million.
- What's at stake: Varo's 2020 national bank charter, intended to ensure profitability, is now seen by analysts as a significant cost burden without the expected asset or fee revenue.
- Expert quote: "They need to grow like a fintech, but be profitable like a bank," according to Simon-Kucher analysts, who note Varo appears to be "losing active customers faster than it is acquiring them."
Overview bullets generated by AI with editorial review
Varo's latest quarterly call report paints a grim picture of the neobank's financial health and raises questions for its new leadership, even as its backers privately defend the performance.
The latest call report from the digital-only de novo, released last week by the Federal Financial Institutions Examination Council, shows the bank's total deposits have been cut in half over the last three quarters to $160 million, and quarterly net losses have deepened to $71 million.
This deteriorating performance, which includes a slowing bottom-line income metric, comes just months after
Walsh had led the company through its 2020 trailblazing acquisition of a national bank charter, a move intended to let Varo "control our destiny" and build a profitable business based on credit products.
Now, with total equity capital at its lowest level to date ($54 million), the bank's new CEO must confront a set of strategic challenges identified by outside analysts.
Most of the public insights about Varo's financials come from its call reports, which are designed to help regulators assess systemic risk rather than help investors assess a company's value and financial performance.
However, according to analysts with consultancy Simon-Kucher, call reports are still "incredibly meaningful for comparisons between banks and benchmarking over time."
Simon-Kucher analysts provided joint written commentary to American Banker for this article. The analysts are Christoph Stegmeier, head of neobanking at Simon-Kucher; Rohan Shah, Americas lead in consumer banking; and Leo D'Acierno, senior advisor to Simon-Kucher.
A spokesperson for Varo declined to publicly provide comment for this story. A spokesperson for Warburg Pincus, a venture firm that has repeatedly invested in Varo, also declined to publicly comment.
Limited proprietary evidence suggests Varo has a growth case
Varo has had net losses each quarter since 2020 — a period of capital burning that is not unusual for a growth company — according to its call reports. However, these net losses have gotten deeper in recent quarters.
According to the latest figures, Varo reported a net loss of $71 million in the third quarter. Compare that to a net loss of $48 million in the same quarter last year and $65 million in the third quarter of 2023.
An increase of $4.5 million in salary and benefits, combined with a $2 million increase in credit provision expense, had a big impact compared to the previous quarter, according to Tristan Green, director at consultancy Cornerstone Advisors. However, he was relatively optimistic about Varo's overall standing.
"While equity capital is down, the bank's ratios are still fine," he said. "It has been operating at a loss since inception, so assuming it can continue to get capital infusions from investors, it can continue to operate as long as the money keeps coming in (which most banks would not have the benefit of)."
It is unclear whether Varo's losses have been accompanied by an increase in active users, as the company is only required to report how many accounts it has in total, regardless of recent activity on these accounts.
However, according to a person familiar with the matter, the company's average revenue per user, or ARPU, has increased recently.
Varo currently has an average revenue per active user between $300 and $400, according to the person, who asked not to be named to allow them to discuss financial information about the private company.
Varo had previously asserted in March 2024 that it had an average revenue per active user of $290 — a figure former Varo CEO Colin Walsh
In other words, even as it continues to rack up losses, Varo has improved its average revenue per active user — at least marginally. And, compared to Varo's peers, this unit economic appears strong.
While little data is available about comparable metrics at Varo's neobank peers, public fintechs offer a point of comparison.
During its earnings report on Wednesday, Chime reported an average revenue per active member of $245. This is the company's revenue in the quarter divided by monthly active members, then multiplied by four to get an annualized figure.
Likewise, from July 2024 to June 2025, Cash App had total revenue of $15.7 billion and 57 million active transacting users in each of those four quarters, according to its financial disclosures. This means the app had an average revenue per active transacting user — a close equivalent to ARPU — of $275.
Ample public evidence suggests serious struggles
Analysts at consultancy Simon-Kucher said Varo's supposed level of profitability per active user of between $300 and $400 "is a very positive sign" for the company. However, it's more of a silver lining than a panacea.
"Varo's average deposits per FDIC-insured account ($30-$40 range) and average revenue per account (less than $7 per quarter) are low and declining compared to leaders in the Simon-Kucher global neobank database like Chime, Nubank and Revolut," the analysts said.
These other companies generate five to six times more revenue per account when combining both active and inactive users, the analysts said.
The discrepancy between Varo's average revenue per active user and its low average revenue per account "indicates that Varo's active customer base is small compared to other high-growth neobanks," the Simon-Kucher analysts said.
As such, Varo ought to figure out "why it appears to be losing active customers faster than it is acquiring them, given their precipitous drop in deposits," the analysts said.
This "precipitous drop" came over the last three quarters, during which time Varo's total deposits were cut in half. The bank reported $337 million in deposits as of Dec. 31. As of last week, that figure was down to $160 million.
Other metrics paint a similarly grim picture.
Worsening net losses have been reflected in worsening return on equity, which fell to -166%, the bank's lowest in four years.
Varo also has dwindling total equity capital, which was down to $54 million in the third quarter. This is Varo's lowest capital level to date despite an apparent infusion of money earlier this year, when its total capital increased by $27 million from 4Q 2024 to 1Q 2025.
Adjusted operating income — the sum of net interest income plus noninterest income — also appears to be slowing in a concerning sign for the neobank's revenue base. Varo had $112 million in adjusted operating income in the third quarter, according to its call report filed last week. This is a slight decrease from $114 million in Q3 2024 and a bigger decrease from $149 million in Q3 2023.
Charter trailblazing could be costing Varo
Varo holds a singular position within the U.S. financial technology market, being the sole de novo neobank in the U.S. to receive a banking charter.
On July 31, 2020, it became the first consumer fintech firm to achieve a national bank charter when it got official approval from the OCC, FDIC and Federal Reserve Board.
The advantage of obtaining the charter was that Varo could "control our destiny" and offer a full suite of FDIC-insured services without relying on a partner bank, according to former CEO Walsh.
Critically, this capability was intended to allow Varo to offer credit products — such as short-term loans, credit cards, and eventually home financing — to help people onto the credit ladder.
However, according to Simon-Kucher, "Varo is still early in the process of building an asset generating business and is also early in the process of generating more fee revenue."
As such, the neobank "has neither of these winds at its back, yet carries the cost of a banking license."
A change of direction in 2025
A critical shift occurred in February 2025 when founder and CEO Walsh announced he had stepped down after 10 years, being succeeded by Gavin Michael. Michael had previously been the CEO of the cryptocurrency exchange Bakkt for four years and held senior technology and digital roles at Citi, JPMorganChase and Lloyds Banking Group.
Walsh characterized Michael as the "perfect person to take this forward" due to his deep technology background combined with his experience in banking. Walsh remains on Varo's board and is one of the top shareholders, expecting to offer his "credible challenge" to the new management.
The choice of Michael, a technology expert, signals Varo's continued emphasis on its origins as a "tech play more than a banking play," Todd Baker, a senior fellow at the Richman Center for Business, Law & Public Policy at Columbia University, said at the time.
Baker also said at the time he found it "a bit surprising" that the new CEO was not someone specifically skilled at adding loans and earning assets to the balance sheet, which is a key requirement for profitability.
Varo needs a multi-pronged path to success, per analysts
Varo faces multiple challenges, according to the Simon-Kucher analysts. The bank needs "better unit economics and pricing, improved acquisition and retention," and "increased usage of credit offerings and spending through debit and credit cards."
To sum it up: "They need to grow like a fintech, but be profitable like a bank," the analysts said.
The analysts provided multiple prescriptions:
First and foremost, the analysts suggested Varo needs more and higher-balance customers to address its low average deposits per account. The neobank could also motivate users to take up "desirable behaviors" such as direct deposits, cash advances and lines of credit, card purchase transactions and loyalty programs.
Varo also needs to demonstrate profitable loan growth to improve its loan balances per account, loan loss allowance and charge-off ratios, according to the analysts.
They also suggested pricing all products effectively to achieve balance and margin growth. "Really understanding the elasticity of its customers and the value they get from the offerings is critical," the analysts said.
Varo could also selectively expand its service offering to generate opportunities for greater fee income.
Finally, while demonstrating expense discipline may serve Varo well, "their greatest challenge is activating more of their over 6 million FDIC-insured accounts to utilize existing offerings and retaining or increasing the deposit balances of these accounts more effectively," the analysts said.
"Executing on all of these levers should drive Varo from cash-depleting to capital-generating," the Simon-Kucher analysts concluded. "A chartered digital bank with the right value proposition could be uniquely valuable and fulfill the promise of Varo's strategy."
