Becoming a Bank – Varo Articulates the Leap from Fintech to Banking

Varo Money wants to become Varo Bank. The completely mobile-app driven fintech startup already lets customers juggle financial tasks with the touch of a button but now they want to make it official.

Varo has applied for a full national bank charter with the bank’s headquarters in Utah in hopes of becoming a national bank. Varo is the second fintech startup to apply for a bank charter in as many months, with the SoFi application still pending, though there are key differences to the design of each application.

Colin Walsh, co-founder and CEO of Varo Money, took some time to discuss the bank charter application with deBanked, offering his take on how the future of banking is moving toward mobile and reviving the banker relationship, which has gotten lost along the way.

deBanked: Why a bank charter and why now?

Walsh: We founded Varo with a specific vision: to be an indispensable financial guide for customers, with a full suite of banking and financial products. Our founding intention was to create a bank that made it easier and more affordable to manage money. We’ve been in conversations with the regulators for a number of months, and we completed the “pre-application” process. In the past year the regulators’ openness to new de-novo bank charter applications has shifted.

deBanked: Was SoFi’s recent move to similarly apply for a bank charter any inspiration for you?

Walsh: SoFi’s filing did not affect our process; we’ve been in conversations with regulators for months (see above answer). In addition, SoFi applied for a different type of charter than we did. They applied for a state-chartered ILC, which tend to be used by subsidiaries of companies whose primary business is not banking. We applied for a national bank charter to become a full-service national bank.

deBanked: Have you faced any backlash since applying for the bank charter?

Walsh: Not so far. Varo was founded to make it easier and more affordable for customers to manage their money and improve people’s financial lives. We believe that integrating traditional bank products with modern technology (predictive analytics, contextual alerts/notifications, auto-savings, visualizations) is the best way to achieve this outcome. While it brings a new breed of competition, we believe it is the future of banking and is ultimately in the best interest of consumers.

deBanked: Is Varo 100% smartphone banking? For iOS and Android? What type of growth are you experiencing?

Walsh: We also offer service through Interactive Voice Response and phone. We pushed our iOS app into the Apple App store [in] mid-June and are already experiencing very strong demand.

deBanked: Does Varo issue loans and are they from your balance sheet?

Walsh: Yes and yes. Varo makes unsecured loans to customers in states where we have lending licenses.

deBanked: You come from traditional banking, correct? What do you think of this shift toward online and now mobile banking/lending? Are traditional banks going to be left behind?

Walsh: That is correct, I spent 25 years with traditional banking and financial services companies. 92% of all adults ages 18-36 own a smartphone, and modern technology opens up the possibility of a personal banker in your pocket. The game is changing. Banking used to be a relationship business — but most banks have gotten too big to help the bulk of their customers solve everyday problems and get ahead.

Many incumbent banks aren’t able to make the technological changes that customers of the future will demand. Instead of making step-changes to their technologies, they continue to iterate on the same products and channels that serve the same customers in silos, without imagining what the future of banking could look like.

Varo will be the first entrant to truly challenge the existing banking model. Varo combines proprietary technology and integrated financial solutions to bring relationships back to banking for everyone, all on your phone. Varo is a bank designed around solving financial problems, not pushing products. There’s room for everyone, it’s a very big market, but Varo aims to raise the bar for what consumers should expect from their banks.

deBanked: Do you work with any bank partners?

Walsh: Yes, we have great partnerships with The Bancorp Bank, who serves as our sponsor bank for Varo Money’s current business, and Silicon Valley Bank, where we have our main bank account and a venture debt facility.

deBanked: Are consumers ready to make the shift to 100% mobile banking?

Walsh: We’ve seen that many customers are willing and ready to make the shift. Varo’s vision is that everyone deserves a personal banker in their pocket. Access to financial guidance should be instant when a customer needs it and not bother them when they don’t. We want to reduce stress through financial empowerment so that our customers can fulfill their ambitions, stop worrying and go live their lives.

Just like Amazon disrupted retail by providing instant shopping in a customer’s hand, banking in the future (and even today) doesn’t have to be about geographic coverage anymore. We believe that the future of banking is about providing an on-demand solution that gets customers from A → B with minimal friction and maximum delight. Once customers experience how easy and affordable Varo is, traditional banks seem outdated. Trust, safety, and security are requirements for our business that we take very seriously.