Varo Money's three-year journey to become a national bank came to end Friday, after regulators gave final approval for the fintech to operate as Varo Bank N.A.
Varo is the first challenger bank to obtain a national bank charter from the Office of the Comptroller of the Currency (OCC), following signoffs from the Federal Deposit Insurance Corp. (FDIC) and the Federal Reserve, a process that cost the fintech nearly $100 million.
"This is a thrilling milestone for Varo, as the bank charter has been a core part of Varo's disruptive vision from the very beginning," the company's founder and CEO, Colin Walsh, said in a statement.
The approval process hasn't been cheap. The FDIC is mandating Varo to hold at least $104.4 million in capital requirements.
Varo recently raised $241 million in a Series D venture funding round co-led by Gallatin Point Capital, Progressive Insurance and The Rise Fund, an impact investment fund co-founded by U2 lead singer Bono. The company said it has raised a total of $419.4 million to date.
Having gained a national charter, Varo said it will expand its services "to more holistically target a broader set of customer needs."
"2020 has been challenging for many of us across the country and has highlighted, once again, how the traditional financial system is not meeting the needs of hardworking, everyday Americans," Walsh said. "The ability to operate as a full-service national bank gives Varo more freedom to deliver the kind of innovation and allyship that many Americans have never had from their bank before."
Operating as a national bank translates into cost savings and the ability to offer a larger suite of products, such as credit cards, loans and potentially robo-advisory services, Walsh said. Until now, Varo has had to rely on state lending licenses to offer loans.
Varo will also be able to offer joint accounts, wire transfers and money market accounts — "things that a fintech really can't do," Walsh told Banking Dive in October.
As an FDIC-insured national bank, Varo can now hold its own deposits, which The Bancorp Bank had handled since Varo launched its banking services in 2017.
Varo will convert The Bancorp Bank accounts to its own platform, a Temenos 24 system, according to American Banker.
Acting Comptroller Brian Brooks said Varo's charter "marks an evolution in banking and a new generation of banks, born from innovation and built on technology intended to empower consumers and businesses."
"Each national bank charter granted by the Office of the Comptroller of the Currency signifies the bank has survived our rigorous vetting and meets the standards and qualifications necessary for it to operate across the country under a single, uniform regulatory framework," he said in a statement. "I congratulate Varo founder Colin Walsh and all the people behind Varo Bank N.A. on this important occasion, and I wish them great success in meeting banking and financial needs of their community and customers."
SoFi, another U.S. fintech applicant, is looking to follow in Varo's footsteps. The personal finance startup this month filed an application for a national bank charter with the OCC.
U.K. challenger bank Monzo is also seeking a U.S. bank charter. The digital bank submitted a de novo application for a banking charter with the OCC in April.