Varo Money Raises $241 Million As It Moves Closer To Becoming A National Digital Bank
Varo Money, the mobile banking startup, raised $241 million in venture funding with proceeds going to meet the capital requirements necessary to operate a national bank, develop new products, and otherwise support growth.
The Series D round of funding co-led by Gallatin Point Capital, a new investor to Varo and The Rise Fund, which already backs the fintech, is notable given the COVID-19 pandemic has decimated the economy and hurt tons of businesses including startups. But with mobile banking growing in popularity as some banks remain closed and people have more time to research banking alternatives, investors have found a reason to invest in a fintech.
“Since the onset of COVID we’ve seen an acceleration of consumers adopting digital banking,” said Colin Walsh, founder and CEO of Varo. “There’s been a huge surge in deposits, a huge surge in payment activity, and a surge in customer accounts. Investors have seen what Varo is doing.” Since the beginning of 2020, Varo has seen a nearly 350% uptick in deposits, a 140% increase in spending activity, and its cost to acquire customers is down 40%.
It doesn’t hurt that the fintech has made moves during the pandemic to position itself as a destination for the underserved. It provided direct deposit customers with early access to stimulus and unemployment funds, increased deposit and ATM limits, and has inked partnerships to help customers find jobs during the pandemic. It’s certainly not alone. Lots of fintechs have stepped up to help their small business and banking customers weather these unprecedented times, but Varo’s actions appear to be resonating given the surge in users.
Varo is in the final stages of landing a national bank charter, awaiting a sign-off from the OCC, FDIC, and the Federal Reserve. Once that happens, which the fintech expects this summer, Varo will move beyond savings and checking accounts, offering credit cards, loans, and other savings products similar to how traditional banks operate. The fintech needs to have $104 million in equity to gain the banking charter and this fundraising round far exceeded that. With the latest round of funding, Varo has raised $419.4 million since its inception in 2017.
Walsh says what is driving growth and investor interest in Varo is zero fees, a higher interest rate on savings, and digital tools designed to help people improve their financial situations. Varo is going after the millions of consumers that are largely ignored by the big banks. It also expects to have an edge over fintech rivals since it will be among the few to operate a fully digital bank. “People are fed up with being nickel and dimed and not provided with good service,” said Varo’s CEO. “Now they are discovering banks like Varo.” Varo customers save on average $350 a year on fees, which is pretty meaningful for people that don’t have a lot of money.
Outside of research and development, Varo said the funding will go to add new employees and invest in partnerships including Progressive PGR Insurance, which is among the new investors to participate in the round of funding. “We understand consumers’ needs continue to evolve, and Varo provides a convenient, cost-effective way for all consumers to bank,” said Progressive’s Chief Strategy Officer Andrew Quigg.“We’re excited for the opportunity to invest in Varo and look forward to exploring a commercial relationship.”