- The online bank is boosting partnerships with job platforms and putting an emphasis on processing customers’ relief funds
- Varo Money expects approval to become the first national online bank this summer.
- The mobile bank’s backers include The Rise Fund, the impact-investment fund with more than $4 billion co-founded by singer Bono.
Varo Money is prioritizing the processing of its customers’ assistance payments and boosting ties with jobs platforms in response to COVID-19 shutdowns as it aims to become the U.S.’s first national online bank.
The San Francisco-based fintech is using the pandemic as an opportunity to position itself as a bank for the fifth of the U.S. population that is either unbanked or underbanked by providing direct-deposit customers with quick access to both stimulus and unemployment payments, CEO and founder Colin Walsh told Karma in an interview. It has also raised deposit and ATM limits, while advancing partnerships with job platforms Steady and Wonolo.
While much of corporate America has been devastated by COVID-19, digital banking has accelerated, Walsh said.
The fintech is in the final stages of the process to receive its national charter, something it expects to be completed this summer. Earlier this month, it said it raised $241 million, which will help complete the process to gain its national charter — perhaps as soon as this summer. Investors included previous backers The Rise Fund, which was co-founded by U2 singer Bono, as well as Progressive Insurance and HarbourVest Partners. Varo’s total fundraising has reached $419.3 million, according to PitchBook.
“America needs a bank that recognizes the decades of financial inequity and chooses to do something about it, and that has always been and continues to be Varo’s mission,” Walsh told Karma.
Varo offers checking and savings accounts with no minimum balance requirements and no monthly fees. The only fee a customer sees is when they use an out-of-network ATM. The fintech makes money from the fees merchants pay when its debit cards are used, and when account holders take advantage of offers from its partners. Money is saved because there are no brick-and-mortar branches, but customers can access 55,000 Allpoint ATMs at no fee.
The growing number of mobile-banking customers during the pandemic and the closure of some conventional-bank branches has investors looking to back fintech startups. “We intend to use the funding to invest in new products that our customers need right now and as we open Varo Bank, including short-term lending and credit-building and repairing solutions as millions see their finances impacted by COVID-19’s effect on the economy,” Walsh said.
Varo has plenty of digital banking competitors — from long-established sites like Ally to upstarts like Chime and Aspiration. However, those companies, including Varo currently, do not have their own bank charters. They rely on deals with existing banks in order to offer customers Federal Deposit Insurance Corporation guarantees for accounts and other benefits.
Varo hopes to be the first to get its own national bank charter. It received approval from the FDIC to receive deposit insurance in February, leaving it awaiting sign-offs from the Office of the Comptroller of the Currency and the Federal Reserve. The latest funding will allow the startup to meet capital requirements required to operate a national bank and develop new products. Varo plans to offer new products such as credit cards and loans once it receives the sign-offs.
A Federal Reserve economic report last year showed that 6% of American adults were “unbanked,” living without a checking, savings or money market account. The study also found another 16% of adults were “underbanked,” meaning they had an account but also had to use alternative financial products.
“We will be able to offer a range of tech-driven products, solutions and experiences that no fintech, and no traditional bank can,” Walsh said.
There is no shortage of fintech startups offering banking, insurance, trading and other financial services. Lemonade, which offers a fully-digital insurance platform for renters and homeowners, filed for an IPO on June 8 to raise $100 million. Not all fintech startups are flourishing, Synapse, which makes digital banking software for other fintechs, is laying off almost 50% of its full-time staff, Forbes reported.
“In the midst of all the economic challenges people are facing right now, the digital economy can still be a force for good,” Maya Chorengel, co-managing partner of The Rise Fund, said in a statement.