Varo Money Inc. is shooting to be the first national mobile bank. The mobile banking startup announced Tuesday that it has applied for a national bank charter from the Office the Comptroller of the Currency and for federal deposit insurance from the Federal Deposit Insurance Corp. to form Varo Bank N.A.
Varo is not applying for a special purpose charter because they are “generally used for a bigger company that is applying as a subsidiary where banking is actually not their core business,” according to Emily Brauer Gill, director of brand and communications for Varo.
Brauer Gill noted that from its inception, Varo’s founder, Colin Walsh, wanted to make the firm a national bank.
“Banking will be our core business, so we believe that the national bank charter is the right one for what we want to achieve,” Brauer Gill said.
She said that Walsh left the financial services industry after holding positions at Wells Fargo, Lloyds and American Express “because he saw this widening gap between what banks were making and what they were offering from a product perspective, and what he thought the majority of people actually needed and wanted.”
The rest of the founding team and several other members of the leadership team also has a financial services background, Brauer Gill said. “They know what is missing from a solution set perspective and what problems aren’t being solved for customers.”
Other members of the team come from the consumer technology space. Brauer Gill is from Apple, while the head of products, John Vars, was with TaskRabbit, and head of strategy Adam Nathan came from Lyft.
Brauer Gill said banking used to be about relationships, but most banks have gotten too big to help their customers solve “everyday problems and really get ahead.” With higher operational costs, incumbent banks can only afford to offer higher-touch wealth management and financial planning services to a small segment of their customers, she explained.
Incumbent banks are only making incremental changes to their technology offerings, too, she said. “They’re not looking to the future and making step changes to what banking really can be. That’s what Varo is doing; the basic concept is we want to help customers solve everyday financial problems.”
Varo believes it can do that by integrating traditional bank products — deposits, savings and lending — with tech-based financial health tools, Brauer Gill said. “Specifically we are building cash flow projection, spend tracking, alerts and notifications that are contextual, auto-savings, goal tracking, and combining this in our app in a way that removes friction.”
Varo’s target customer is the underserved “hands-off” banking customer left behind by incumbent banks, Brauer Gill said. “This concept of a hands-off person … is someone who doesn’t manage their money by spreadsheet, doesn’t like budgets, and kind of manages by bank balance,” Brauer Gill explained.
She said that Varo’s consumer research found that “a lot of people have a number in their head that they’re solving for and they manage their money by logging on, checking their balance. They think they know what their expenses are, so they’re doing mental math all the time, but everyone’s human and they often get it wrong.”
Unlike other internet banks like Ally, Varo got its start online. Ally grew out of GMAC, a division of GM. As analysts at PwC pointed out in a note published on Thursday, “internet banks have existed for quite some time, but even those banks were designed outside the world of apps and smartphones.”
“As a first mover, Varo seeks to turn the main fintech weakness into a strength: the ability to grow assets by first building a consistent, low-cost funding base,” according to a note by PwC published Thursday.
PwC wonders if Varo is setting an example worth following, as the startup’s leadership comes from the financial services industry, rather than technology.
“Varo stands to become the first ‘mobile-native’ bank in the U.S. and could act as a proving ground for how these business models may change in the future,” according to PwC. “The first-mover advantage may prove to be a benefit, and it will be interesting to see if other U.S.-based mobile-native banks, such as Moven and Simple, pursue similar strategies.”
Varo has been in talks with regulators for months, Brauer Gill said, and still has to go through a preapproval process, which could take between three and six months. From there, Varo would have a year to begin setting up its national bank operations, she explained. “The process could take many months from here on out.”
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