Varo Money is a digital challenger bank that currently offers banking services including a free banking account, P2P solution, a high-yield savings account, early recognition of payroll, and a small overdraft cushion of $50.00 for qualifying customers, among other features.
Many of the U.S. challenger banks, like Varo, offer services through a partner bank for account and/or prepaid services to facilitate their product offering and to gain access to banking networks like the ACH system and card systems. Varo Money has been determined to cut out the middleman and obtain their own banking license.
Varo just announced that it have reached a significant milestone: approval by the Federal Deposit Insurance Corporation for deposit coverage. From Varo’s Feb. 10 press release:
Mobile banking company Varo Money, Inc. today announced a significant step in its application process for a national bank charter, with approval from the Federal Deposit Insurance Corporation (FDIC) for deposit insurance. The Office of the Comptroller of the Currency first awarded Varo preliminary approval in September 2018. Now with FDIC insurance, Varo moves the charter process to the next and final step of the approval process. Varo’s progress with its charter application underscores a bigger shift in the banking industry toward technology-driven experiences as well as a renewed regulatory commitment toward financial inclusion.
Since launching in July 2017, Varo has become a highly rated mobile banking brand with a mission to expand financial inclusion and help people stretch their money with bank accounts that have no minimum balance requirement or monthly account fees. Varo customers can get paid up to two days early with direct deposit*, and the company’s No-Fee Overdraft feature allows qualified customers to overdraw their bank account up to $50** with no fees if they are running short before the next payday. Additionally, Varo offers fee-free ATM withdrawals with its network of more than 55,000 Allpoint® ATMs worldwide.
Acquiring a full-fledge bank charter is not for the faint of heart. It is unlikely that there will be many other challenger banks interested in pursuing this path.
Those with plans to amass a broad client base through high rates are unlikely to want to take on the commitment required to secure a bank charter. Varo is one among a very few organizations that have pursued this route.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group