Varo Crosses the Bank/Fintech Moat

Fintech firm Varo Money became a pioneer of sorts this week, boldly going where no fintech has gone before. Varo, a digital challenger bank, became the first fintech to be approved by the FDIC for a national bank charter. 

Currently, Varo provides digital checking and savings accounts, and deposits are held by the Bancorp Bank, an institution with a national charter that is used by many fintechs as a third-party partner to hold customer accounts. With a regulator-approved national charter, Varo would hold all customer data themselves, and be able to get into other aspects of financial services such as lending. 

“I believe that Varo getting a national charter is a game changer for the fintech sector and banks in general,” said Kalpesh Kapadia, CEO and founder of Deserve, a Goldman Sachs-backed fintech that offers credit cards to nontraditional consumers using alt data and machine learning to determine applicants' creditworthiness. “While there will be an additional regulatory burden in the short run, it will be more than offset in the long run by having the ability to leverage deposits to lend, providing a competitive edge over other neobank/challenger bank offerings. Varo will also have a cost-to-serve advantage over mid-size and smaller banks and credit unions by not being mired by legacy infrastructure (COBOL/mainframe and physical branches).”  

The notion of a fintech getting approved for a national bank charter has long been a talking point in the industry, and Varo now has made this once-fanciful idea a reality. Now we’ll see if this opens the doors for more digital-only start-up fintechs to become full-fledged banks.