Varo Bank, the San Francisco-based, mobile-only neobank, raised $510 million in a funding round led by Lone Pine Capital. The Series E round saw several existing investors, as well as new ones, invest in the fund.
The cash infusion helped to more than triple the firm’s valuation from $700 million to $2.5 billion. In addition, Varo’s customer accounts doubled to 4 million. Varo CEO, Colin Walsh, said the firm also tripled its revenue once it received its national charter last year.
Varo is just one of several digital banks to amass a multibillion-dollar valuation. Consumers are unsatisfied with traditional banking, and millions are flocking to online fintechs. While some of Varo’s competitors, like Chime, partner with banks that have FDIC-backing, Varo is regulated. In fact, the firm was the first consumer fintech to win a national charter. It did so during July of last year.
Walsh said, “There’s an element of legitimacy of operating as a real bank that is very powerful at the end of the day. We’re directly regulated. Everything we do is subject to scrutiny.”
Varo has more cost advantages and access to funding than many of its competitors. This allows the bank to offer instant cash advances and higher interest rates, and access to Zelle. Before getting a charter, Varo had a partnership with Bancorp.
Walsh added, “We’ve effectively eliminated the intermediaries. Those are real costs that we’ve cut out that we can now use to create more value for our customers and for our shareholders.”
The startup also retains ownership of its consumers’ data, rather than a partner bank ending up with it. According to Walsh, that helps Varo to give its customers a more personalized user experience. The firm hopes to eventually include investment functions as part of its suite of offerings.
Walsh pointed out, “Customers do not want to have a dozen apps on their phone to manage their financial lives. They want a trusted provider to help them navigate through the various things that they’re trying to solve.”
Walsh was previously with American Express, where he worked as an executive. He began the bank charter process for Varo early during its development in 2017. During that time, the firm took its time to ensure satisfying the regulatory requirements of the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. Meanwhile, Varo’s competitors just focused on getting as many customers as they could.
“We sort of did it in reverse order from the Silicon Valley playbook, which is, you know, just find a niche, scale-up really quickly, and then figure out the rest. Now it’s about dialing it up in a way that will create a very profitable business that will have an enormous impact on the lives of our consumers,” Walsh said.
According to Walsh, Varo may eventually go public or expand overseas. He also hinted that now the firm is ready to compete with other firms.
“They’ve just been at it longer. Now the fun begins,” Walsh said.