Varo Money Inc., a 5-year-old mobile-banking and payments startup that’s closing in on a national banking charter, raised $241 million in a Series D round that closed Tuesday. The round, co-led by Gallatin Point Capital and The Rise Fund, will help the San Francisco-based Varo expand its financial-product offerings and fuel its growth, officials said.
Varo, which has now raised a total of $419.4 million in its brief history, says it expects to receive this summer regulatory OKs for a national bank charter. It is awaiting final approval of its application from the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., and the Federal Reserve.
Varo’s pursuit of a charter has raised less controversy than similar applications by other financial-technology companies. A recent example is that of Square Inc., whose application for a Utah-based industrial loan corporation evoked strong opposition from the Independent Community Bankers of America and other banking groups. Square obtained the ILC in March.
The ICBA and other groups have opposed ILCs on the grounds that they could allow tech companies and other non-bank applicants to discriminate among commercial clients in ways traditional banks don’t. But the ICBA has said it doesn’t oppose Varo’s effort, since the company is obtaining a traditional national bank charter rather than an ILC.
“ICBA has used the Varo application as an example of how fintechs that want bank charters should enter banking, rather than through the industrial loan company loophole or the OCC’s proposed special-purpose fintech charter. ICBA continues calling on community bankers to tell Congress to close the ILC loophole,” the group said in a statement issued in February.
Varo, which offers banking services now through The Bancorp Bank, 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.
After years in development, the company opened commercially in July 2017 and says it offers accounts with no minimum balance requirements, no monthly account fees, and no-fee ATM withdrawals through the Allpoint network, which includes 55,000 machines.
“This new investment will enable us to complete the chartering process and leverage our modern banking technology to build on our track record of innovation and inclusion,” Colin Walsh, Varo’s chief executive, said in a statement Tuesday in the wake of the funding round.