Fintech Firm Pushes the Banking Boundaries


July 26, 2017

A mobile-only financial institution has taken a move towards acquiring a bank charter in the US. The fintech firm called Varo Money has filed a formal application and hopes to become a national bank. This private equity backed fintech firm is yet another firm to push the banking boundaries – while the authorities are trying to keep up with the technological innovation.


Filing the formal application


Varo Money announced on Tuesday that it has filed a formal application with the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. The aim of the application is to obtain a status as a national bank.


Differing from other traditional banks, the fintech firm only plans to operate as a mobile financial institution. But the objective now is to follow a traditional bank model in certain other financial ventures. Varo Money is set to take deposits from clients, as well as cash checks and make loans. The core product would be direct deposit and savings accounts, but it would also begin unsecured lending.


According to Colin Walsh, the CEO and co-founder of the fintech firm, “The bank charter will simplify our model and allow us to offer a fuller suite of products on a nationwide basis”. Walsh also said that if the application goes through, Varo Money would “be the first national bank in U.S. history that is designed for people who want to bank on their cellphones”.


Pushing forward while regulators ponder


The rise of the fintech sector has not been easy on the regulators. The innovative technologies have meant that much of the global and national financial regulation is out-dated or doesn’t cover the topics in question. Plenty of fintech firms are operating in a bit of a limbo – this can damage the reputation, but also stall growth.


Varo Money is moving ahead despite the US regulators still trying to work out what to do with fintech. Interestingly, the firm has chosen to seek a status of a traditional bank instead of applying for the fintech charter. While the charter is a work in progress at the OCC, it’s still favoured by many firms.


However, the application is not done and dusted yet. It remains to be seen whether the US authorities are ready for a mobile-only bank. Authorities haven’t been providing permits that easily ever since the financial crisis in 2008.


Walsh has said he understands the challenges ahead. “This is incredibly demanding and complicated and both the OCC and the FDIC have been very clear that while they’re interested in what we’re doing, it’s not going to be easy,” he said in an interview.


Private equity backing to boost the prospects


Varo Money launched in 2015 and it has been rather successful in the fundraising front. The firm has raised $28 million in equity and venture debt facility. Its big backers include the private equity firm Warburg Pincus.


Just like many fintech firms, it has even attracted the attention of a Silicon Valley bank. The bank made a $5 million investment in the last investment round. The firm and many others like it will be waiting anxiously on what the authorities will rule.

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