Fintech News: Varo Money Inc. Granted FDIC Coverage, Positioning It To Gain National Charter

Mobile banking company Varo Money Inc. announced Monday the Federal Deposit Insurance Corp. had approved FDIC deposit insurance for its accounts, a major step in its quest to become the first mobile national bank, positioning it to take on traditional banks, which have strongly opposed allowing fintech firms to provide insured deposits.

“Receiving an official bank charter has been part of Varo’s vision from the very beginning, and we are excited to progress through the necessary steps to accomplishing that goal,” CEO Colin Walsh said, adding, “Becoming a fully chartered bank will give us greater opportunity to deliver products and services that positively impact the lives of everyday people around the country.”

Bank regulators have long worried fintech startups are insufficiently capitalized to survive a bank run and lack the expertise to survive.

"From a regulatory perspective, this is a recognition that technology-driven banking is now mainstream," Walsh told Axios. "This has been a three-year process, and we've spent tens of millions of dollars on it. That's something of a moat for us. It's hard to find investors willing to put that kind of money upfront without the certainty of reaching the finish line."

Walsh said obtaining the charter would be a “watershed” moment. The company predicts it will be profitable within a year.

Varo now needs to complete organizational requirements for Office of the Comptroller of the Currency and the FDIC’s Federal Reserve membership. It also needs to pass a preopening examination. The company hopes to receive final approval by midyear.

Once it obtains the national charter, Varo said it plans to expand into credit cards, loans and other services to augment its savings and checking account operations. Since its inception, it has partnered with Bankcorp Bank to provide insured deposits, and currently loans money through agreements with individual states.

Varo launched in July 2017, extending services without demanding a minimum balance or charging monthly account fees. It also offers $50 overdraft protections for certain customers and free access to ATMs.

Jo Ann Barefoot, CEO of Barefoot Innovation Group, called the granting of FDIC coverage “significant,” saying it “opens the door for Varo to become the biggest mobile-centric national bank.”

Varo first applied for FDIC coverage in 2018 but withdrew that application after regulators demanded it hire more senior managers.

Several other fintech firms also are seeing charters, including mobile payment startup Square Inc. and brokerage Interactive Brokers.