Monday , December 5, 2022

Varo Bank Signs on As the First Digital Bank to Join the Zelle P2P Payments Network

Varo Bank early Tuesday announced it has become the first digital neobank to be admitted to the Zelle peer-to-peer payments network. The bank, a unit of the 7-year-old, San Francisco-based Varo Money Inc., said it will now offer payments via Zelle through its mobile app.

“Adding Zelle to our product lineup is our bank charter in action”, said the company’s founder and chief executive, Colin Walsh, in a statement. “We are excited to welcome millions of Americans to access Varo’s full range of benefits on our modern, secure, digital-banking platform that now includes the ability to quickly send and receive money.”

Varo says it will not charge fees for Zelle transactions. To qualify to use the P2P payment service, which processes transfers in near real time, customers must have made a so-called direct deposit with Varo within the prior 31 days, Varo says. Qualifed deposits are electronic deposits of a paycheck, pension, or government disbursement from an employer or government agency, the bank says.

Varo, which opened its bank in 2017, has raised nearly $1 billion in investment since its founding two years earlier. Its last funding round, a Series E, occurred in September 2021. It is one of several so-called challenger banks that have emerged to use mobile and other technology to address what they regard as unmet needs among consumers. In December 2016, for example, Varo entered an agreement to use a so-called smart bot from developer Kasisto Inc. to help its customers navigate services offered through its apps.

Varo’s pursuit of a bank charter raised fewer objections from groups such as the Independent Community Bankers of America because the company sought a traditional national bank charter rather than be chartered as an industrial loan corporation. The ILC strategy, pursued in recent years by Block Inc.s’ Square unit and other nonbank companies, is seen by the ICBA and other banking groups as giving leeway to tech companies to discriminate among commercial clients in ways traditional banks don’t.

The 5-year-old Zelle network, operated by Early Warning Services LLC, has come in for criticism in recent months from U.S. Senators concerned about what they see as excessive fraud on the network stemming from cases where users are tricked, or “scammed,” into authorizing transfers. Early Warning has responded by saying reports of “fraud and scams” are “misleading” and that 99.9% of transactions on Zelle are “sent without any report of fraud or scams.”

The owners of Scottsdale, Ariz.-based Early Warning include Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank, and Wells Fargo.  The network, which now links nearly 1,700 banks and credit unions, says it has moved more than 5 billion transactions worth almost $1.5 trillion since its founding in 2017.

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