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Home Lifestyle Business Varo raises $241 million as it nears full bank approval

Varo raises $241 million as it nears full bank approval

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The San Francisco-based neobank closed a $241 million funding round last week, bringing its total funding to $419.4 million, per TechCrunch. Varo will use the cash infusion to complete its regulatory chartering process, which it anticipates completing this summer — once it secures a full banking license, it plans to expand its product line to include credit cards, loans, and additional savings products.



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In February, Varo became the first neobank to receive FDIC approval, a milestone in its three-year journey toward receiving a national bank charter. Varo initially applied for FDIC insurance in 2017, simultaneously applying for a national bank charter from the Office of the Comptroller of the Currency (OCC), which granted the neobank preliminary approval in September 2018.

Varo withdrew its FDIC application that same year to improve operations and refiled in July 2019. Upon receiving FDIC approval, Varo CEO Colin Walsh said the charter could be a “watershed moment” for the neobank. Walsh also said that when it receives final approval, customer accounts would be transferred over from Bancorp, Varo’s sponsor bank

Varo’s approach could become a roadmap for other neobanks operating in the US to follow as they scale.

  • US neobanks rely on partner banks due to regulations requiring a license to accept government-insured deposit — Varo’s success could inspire more neobanks to apply for licenses of their own. Neobanks must choose between pursuing their own license, like Varo, or partnering with an incumbent bank that then takes a cut of any revenue earned. Varo’s success in obtaining this license could encourage more neobanks to follow suit and potentially eliminate the need for sponsor banks, which are often smaller community banks. And more broadly, it could foretell a regulatory shift in favor of digital banks.
  • Holding an independent license will require Varo to dedicate more resources to compliance, but it will also better position the neobank for long-term sustainability. Walsh previously noted that it would be unsustainable to try to grow while operating under a sponsor bank. Despite opening itself up to incurring compliance and other regulatory-related costs — which otherwise would be the responsibility of the sponsor — operating independently is a good move for Varo in the long term as it scales, as it will be in greater control of its own operations and trajectory.

The expanded product suite made possible by a full banking license will help Varo build on the healthy growth it has seen in 2020 thus far. Account growth has increased 60% since the beginning of 2020, reaching 2 million accounts, per TechCrunch.

Customer spend grew nearly 1.5 times higher in the period, and deposits increased by 3.5 times. Varo has also taken steps to aid customers amid the coronavirus pandemic: It offered early access to stimulus checks and unemployment refunds — an extension of an existing feature in which it offers direct deposit paycheck access two days early. It also increased ATM and deposit limits during this time. Launching lending products under a full banking license can help Varo appeal to an even wider potential customer base and give it a significant edge in the US neobank space.  

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