Varo to offer limited overdraft protection to some customers
Varo Money is set to introduce a new approach to overdrafts on Tuesday with an optional feature that enables eligible customers to overdraft their account by as much as $50 without the potential penalty of a declined purchase.
“This is designed to be a small bridge if you're running short — and need groceries or tank of gas — right before payday,” Colin Walsh, Varo's CEO, said in an interview. “It's not designed to be used for large overages.”
Varo’s new feature, called No Fee Overdraft, is the latest example of fintechs attempting to upend the traditional bank model. Last year consumers paid $34.5 billion in overdraft fees, according to industry estimates.
Earlier this month the company behind the popular savings app Digit rolled out a service that provides instant overdraft prevention for its users.
Varo is one of several mobile-only challenger banks in the U.S. that do not charge overdraft fees of any kind. Challengers such as Chine and Green Dot’s GoBank have long touted their policy of charging no account fees, including for overdrafts.
With Varo’s new feature, if a purchase takes a Varo user more than $50 into a negative balance, it will be declined. Before adding this feature, Varo declined any purchase that would put a user into a negative balance.
Only certain Varo customers are eligible for the new feature, however. Customers must make at least five debit card purchases each calendar month while also receiving payroll or government direct deposit of at least $1,000 a month into their Varo bank account.
“We are building a service around trust and loyalty,” Walsh said.
“For customers that use Varo consistently for regular income, this eligibility requirement shouldn't be hard to meet and we’re delighted to extend a $50 overdraft safety net knowing that you’ll repay it on the next direct deposit.”