Will an OCC, FDIC Charter Help Varo Money Become the First National Mobile Bank?

Want a national bank that’s mobile-only? So does Varo Money.

Varo applied for a banking charter from the Federal Deposit Insurance Corporation (FDIC), as well as for a charter from the Office of the Comptroller of the Currenc,  in the hopes of forming “Varo Bank,” the mobile banking startup announced today.

“[Varo] was founded o the belief that we could create this more affordable, faster way to manage people’s money, and the only real way to do t hat is to become a bank,” Colin Walsh, CEO of Varo Money, told Bank Innovation, adding that this step forward was always part of the startup’s plan.

Other, older fintechs such as PayPal have historically avoided becoming traditional banks themselves, but the availability of things like the OCC charter may be changing that story.

This decision makes Varo one of the few startups aiming to compete with traditional banks head-on, joining the ranks of SoFi, which applied for a bank charter (though not the OCC’s fintech charter) in June 2017.

Currently, Varo Money is a mobile app which helps users with money management and their financial savings goals, but by adding the ability to take deposits themselves, as well as the backing of the OCC, the startup is hoping to become the very first national mobile bank within the country.

In other words, the startup’s future bank will be based on mobile technologies, with no plans to build any physical branches as of now. While there are a growing number of challenger or neobanks developing this model in countries like the United Kingdom, there are fewer in the U.S. seeking to directly compete with banks in this way. This may stem from the rarity of new FDIC charters being issued in the U.S., though the number is growing.

“[The charter] is not guaranteed. The regulators have been very clear to us that this is a very rigorous process,” said Walsh. “But we feel realy good about where we’re placed. We think our focus [on financial improvement] is in the right place.”

Varo Money, which was funded in 2016 with a $27 million investment from private-equity firm Warburg Pincus, launched last month for iOS users, with an Android app to come next year, said Walsh. Its app currently allows deposits with The Bancorp Bank acting as the depository.

Those partnerships will no longer be necessary if Varo succeeds in gaining a charter and FDIC approval, a process which will take months. Bank Innovation will be watching.

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