Varo gets vital FDIC OK for bank charter

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Varo Money is a step closer to becoming a full-fledged bank.

The fintech said Monday that the Federal Deposit Insurance Corp. has approved its application for deposit insurance.

Varo received conditional approval from the Office of the Comptroller of the Currency for a national bank charter in September 2018. But the company said shortly afterward that it had withdrawn its application with the FDIC to give it time to fill key posts and address other concerns the agency had. Varo refiled its application last summer.

“It's a rigorous process,” Varo CEO Colin Walsh said of the deposit insurance approval process. “There are no real shortcuts.”

Assuming its gets final sign-offs from the OCC and the Federal Reserve, Varo will have its national bank charter in hand soon. It would be the first fintech provider among several similar applicants to get the green light from federal regulators.

Varo currently provides a mobile app, digital checking and savings accounts through the Bancorp Bank in Wilmington, Del., as well as direct deposit with immediate access to pay. The charter will allow it to make loans in all 50 states and more freely view data about customer accounts since they will no longer be held by a third party.

Colin Walsh, founder and CEO of Varo Money, acknowledged Monday that the process has been a long journey and estimated that it has cost close to $100 million.

“We didn't really understand that with the FDIC you have to have everything very buttoned down,” Walsh said. “They were asking questions like, who's your chief financial officer going to be? What's your core banking platform? We just were just too early in our process; we hadn’t made some of those decisions yet.”

The FDIC also asked about Varo’s financial plan, stress-test scenarios and a wide range policies and procedures. The agency, as part of its Feb. 7 approval, is requiring Varo to provide about $104.4 million in capital to the bank.

“You have to have a lot of detail around how you're going to actually operate the bank,” Walsh said. “At that point, we had substantially completed the conditions that the OCC had asked us to complete to become a national bank,” Walsh said. “So all of the policies and procedures, the risk infrastructure, the control environment, the technical platform and all the key management hires and the board governance were in place.”

Examiners spent time in both of Varo’s offices, which led to some back and forth with the FDIC in Washington.

“It's a rigorous process,” Walsh said. “There are no real shortcuts.”

Varo still faces a few more regulatory hurdles. On Monday it plans to file a bank holding company application with the Fed. The OCC will have to conduct a final preopening examination, too.

“Provided we get a clean bill of health, we'll be able to open the bank shortly after that,” Walsh said.

Walsh said The Bancorp Bank has been a terrific partner. “We would not be where we are without that relationship and being able to bring product into the market,” he said. “We've also been very transparent with them from the start that our ambition was to become a national bank, and they've been supportive of that all along.”

Once Varo opens as a bank, it will begin converting accounts from The Bancorp Bank to its own technology platform, a Temenos 24 system.

When that is complete, Varo will be able to offer direct deposit accounts, checking and savings products as well loans. Up to now, it has had to rely on state lending licenses, which is a complicated process. It might offer a robo adviser.

“This is a massive strategic investment that we couldn’t have made without the support of top-tier investors like Warburg Pincus, the Rise Fund and TPG,” Walsh said. “They were willing to deploy the patient capital without 100% certainty that it was all going to happen.”

Walsh would not say how many customers Varo has, but he said it opened more than 150,000 accounts in January.

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Digital banking Consumer banking Mobile banking Mobile technology Hardware and software National banks Varo Money FDIC Colin Walsh