Varo is officially the first US neobank to receive a national bank charter

• Varo has officially become the first US neobank to receive a national bank charter.
• This should enable Varo to expand its product suite considerably, broadening its appeal and benefitting its bottom line. 

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After a three-year journey, Varo is the first neobank in the US to become a licensed bank in its own right, American Banker reports.

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In 2017, it applied for FDIC insurance and a national bank a national bank charter from the Office of the Comptroller of the Currency (OCC); the former granted its approval in February, and the latter did so last week. The neobank previously offered its services through a partnership with The Bancorp Bank, from which Varo will have to buy its customers’ accounts to move them over to its own system.

Attaining its own charter will enable Varo to expand its product suite considerably, broadening its appeal and benefitting its bottom line. The neobank intends to use its newfound independence as a licensed bank to grow its product offerings by adding credit products such as short-term loans, credit cards, and, further down the line, home financing.

A larger suite of products will help Varo appeal to a wider range of customers than just those looking for a checking or savings account. Credit products will also generate interest revenue, helping Varo move toward sustainable profitability. And further benefiting its bottom line, the neobank no longer has to pay a Banking-as-a-Service provider to use its license.

The next six to 12 months are going to be pivotal for both Varo and US neobanks more broadly as Varo sets the tone for neobank licensing. As a trailblazing licensed neobank, Varo will be under a lot of pressure to justify the confidence regulators have placed in it.

If Varo’s early days as an independent bank are smooth and scandal-free, it could inspire greater regulatory confidence in neobanks’ abilities to function as banks and protect customers, and herald a new era of easier licensing for US neobanks. However, if Varo suffers any setbacks — such as a data breach — it could have the opposite effect and harden resistance against licensing neobanks instead, making it harder for other challengers like Square or Aspiration to follow in Varo’s footsteps.

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