The road to a bank license hasn’t been easy. Varo has been working on a national bank charter since its inception almost five years ago. Now, with the first national charter awarded to a fintech in the U.S., the challenger bank has a lot of work to do.
“It’s not trivial,” said Philippa Girling, chief risk officer at Varo, at Tearsheet’s inaugural Challengers Conference held last week. “It’s been a slog. There is a lot of work to do.”
Varo is planning to launch multiple products aimed at servicing its current and future customers. First up is small dollar lending, something made easier and more profitable with a banking license. Many challenger banks offer some type of lending, either on their own or through a partner bank. Varo plans to join them. The challenger bank is already looking at innovative uses of alternative data to help provide credit to its 2.5 million users.
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Also on the roadmap is a rebranding and redesign that’s already underway. Varo plans to launch the new look and feel early in 2021.
Getting its own license means Varo can build and own a larger piece of the banking technology stack. Although Girling says Varo has a good relationship with its partner bank, Bancorp, she’s excited about the future of going at it alone.
“We’ve built out a really phenomenal tech stack that leans into the latest technology,” she said. “And that’s very exciting for us, because it really takes the lid off what we can do in the way of personalization, in the way of innovation and creativity, and also the speed at which we can design and deliver something.”
Girling emphasizes the importance of owning the entire customer journey, especially as the company grows. Varo has seen new account growth of 200% year over year. Owning the tech stack also means Varo can control more of the touchpoints of the user experience.
“We are a digital bank — we have no branches, no way to interact with our customers, other than through our technology,” she said.
“And so it’s really critical that we own that relationship and that experience for our customer. Because if we need to make a quick pivot, or move in a certain direction, to delight and provide our customers with what they’re looking for, then we need to own that tech stack, we need to make sure that we’re able to move swiftly.”
Having the bank charter improves economics significantly for the challenger bank. Girling says Varo expects to be profitable in 2021.
For other fintechs considering applying for a banking license, the OCC has made it clear that they are supportive of issuing new licenses to fintechs. There is no secret sauce when it comes to securing a license, though, according to Girling.
“There’s no shortcut to this process,” she said. “There’s no secret to how we did it. We did it the way you have to do it. And it takes three years.”