Challenger bank Moven is recommending its consumer banking customers move their accounts to Varo Money, as the company pivots from digital banking to focus on growing its enterprise software business, Moven Enterprise.
Moven began notifying its customers last month it would close its consumer banking accounts April 30. The New York-based fintech had planned to spin off its digital bank, but the coronavirus crisis put a dent in the project's funding.
"The impact of coronavirus on our long-term committed funding pipeline has been impaired, unfortunately," Brett King, Moven's founder and executive chairman, said in a statement announcing the decision. "Our plans for the spin-off of the direct-to-consumer business have had to be shelved as a result."
The company would likely have faced a $2 million loss this year had it continued with the challenger bank, he told American Banker.
King, who started the digital bank in 2011, said the company decided to focus its energies and resources on its smart banking and financial wellness capabilities, a "segment of our business where we can reach the most consumers moving forward."
"I think they were seeing other players here in the U.S. that were probably scaling up a bit quicker, and they realized that it takes a lot of capital to build a consumer business," Varo Money CEO Colin Walsh told Banking Dive. "And it just wasn't the best use of their capital."
Moven's decision gives Varo an opportunity to tap new digital banking consumers.
"When I heard that they were going to pivot toward B2B, I reached out to Brett and said, 'If you guys want to find a home for your customers, I think we've got very similar values and would love to be able to provide the Moven customers a soft landing,'" Walsh said. "That worked out pretty quickly, too, because they've set some deadlines for themselves to move those customers off the platform."
As the April 30 deadline approaches, Walsh said he is seeing a "healthy number" of customers make the transition.
"It's in the thousands, not the millions, but we're starting to see some of these customers moving across now and we're happy to welcome them into the Varo platform," he said.
Transitioning Moven customers to Varo is a straightforward process, Walsh said.
"We're not doing this as a conversion. [Moven] is just simply sending emails and putting things in the app, letting people know that they can go to Varo and it just creates a link right into our registration," he said.
The fintech sector has not been immune to disruptions caused by the coronavirus pandemic.
U.K. challenger banks Monzo and Starling have had to furlough some employees, as the two banks cope with the outbreak's fallout.
New account signups have slowed at Monzo, which is seeing less revenue from interchange fees because of a reduction in customer card spending at home and abroad, according to TechCrunch.
Atlanta-based Kabbage also furloughed some of its 500 employees and shut down its office in Bangalore, India. Executive staff members at the fintech have taken a "considerable" pay cut, according to an internal memo seen by TechCrunch.
But Varo has managed to buck that trend, Walsh said.
"We’re hiring. We’re growing so fast right now. We just hired a whole other class of customer service agents," he said. "We’re one of the few companies out there, other than maybe Amazon and Walmart, these essential services, that are actively hiring people."
Walsh said the neobank’s customer acquisition costs have gone down since the pandemic began. The bank has also seen a surge in deposits.
"We are processing probably two to three times the amount of activity that we've seen prior to this,” he said. "Money is moving through the system more rapidly than we've seen in the past.
"I think times have changed and consumers are starting to reevaluate all the critical relationships in their lives, and one of them is their bank and how they can handle their money," Walsh added. "I think in this more socially distant world that we're living in, people are looking at digital banks as very real, safer alternatives for them."