Mobile banking platform Varo Money received approval from U.S. regulators for a national bank charter, becoming the first fintech to receive that designation as the sector fights for greater legitimacy.
The Office of the Comptroller of the Currency formally awarded the consumer financial technology firm permission to open a digital bank, to be known as Varo Bank, at a signing ceremony Friday. The company also received green lights from the Federal Deposit Insurance Corporation and the Federal Reserve.
“A national bank charter is both a privilege, which Varo has earned, and a responsibility, which it has embraced,” said acting Comptroller of the Currency Brian P. Brooks.
Varo was co-founded by former Wells Fargo executive Colin Walsh in San Francisco in 2015, and its first day of operations as a national bank will be Aug. 1. Varo has nearly two million banking and savings accounts, and account growth has been up more than 60% since the beginning of 2020.
The company said the OCC’s approval “will allow Varo to offer customers comprehensive, FDIC-insured banking services” and “innovate across a range of financial products to ultimately improve the financial health of the millions of Americans who have been overlooked and underserved by the traditional financial system.”
Walsh wrote in a blog post Friday that “the modern U.S. banking system we have today largely helps the haves and shuns the have-nots.”
As a bank, Varo intends to democratize access to premium banking services to meet the needs of all Americans with a smartphone. Walsh described Varo’s strategy as a “tech-driven banking revolution.”
The company plans to expand its services to fit more customer needs such as financial resiliency, affordable access to credit and easier management of volatile cash flows. These will include new credit cards, loans and savings products.
Varo has been working toward the bank charter since it launched its first digital banking services and products in July 2017, in partnership with The Bancorp Bank.
The fintech is poised to take on banks by undercutting their reliance on fees, such as overdraft fees, ATM fees and account maintenance fees. Varo offers no fees on account overdrafts up to $50, banking and savings accounts with no minimum balance requirement and no monthly account fees, and no fees on ATM withdrawals at more than 55,000 global Allpoint ATMs.
Last month, Varo raised $241 million in a Series D funding round, led by investors Gallatin Point Capital and The Rise Fund. Varo said the money would be used to further its initiative to become a national bank, and help it innovate a range of financial products.
“From its inception, Varo’s founders envisioned a new, fully digital bank that would use technology to help everyone improve their financial wellbeing — and from these building blocks of healthier individuals and households, chart a new course of a more just and equitable society,” Walsh said.
Though Varo is the first consumer fintech to be granted full approval to operate as a national bank, several other companies in the rapidly growing fintech sector are working through the application process to follow in Varo’s footsteps.
Earlier this month, SoFi submitted its second attempt to the OCC for a national bank charter. SoFi has traditionally offered services such as refinancing student loans, mortgages and personal loans. As a bank, it hopes to offer credit card services and help its members “achieve financial independence.”
Other technology companies such as Square, Rakuten and Robinhood have also applied for bank charters recently. The OCC formally began accepting national bank charter applications from fintechs in 2018.
The opening of Varo Bank “represents the evolution of banking and a new generation of banks that are born from innovation and built on technology intended to empower consumers and businesses,” Brooks said Friday.