Mobile banking startup Varo Money has raised an additional $241 million in Series D funding, the company announced today. The investment was co-led by new investor Gallatin Point Capital and existing investor The Rise Fund, co-founded by TPG. Also participating in the round were Bono (yes, that one), along with entrepreneur, impact investor and movie producer Jeff Skoll; plus HarbourVest Partners and Progressive Insurance.
To date, Varo has raised $419.4 million in funding.
Launched in July 2017, Varo is now one of several digital banking apps that are taking on traditional banks. Its rivals include startups like Chime, Current, Space, Cleo, N26, Empower Finance, Level, Step, Moven and many more.
Similar to others in this space, Varo promises an easily accessible bank account with no monthly fees or minimum balance, plus high-interest savings, and a modern mobile app experience. Though it doesn't have any brick-and-mortar branches, customers can access their money through a network of more than 55,000 fee-free Allpoint ATMs worldwide.
During the COVID-19 crisis, Varo served its customer base by providing early access to stimulus and unemployment relief funds, as it already does with users' direct deposit paychecks. It also increased its deposit and ATM limits, and partnered with job platforms Steady and Wonolo to help connect its customers to new work opportunities.
Like most of its competitors, Varo itself is not a bank -- its accounts to date have been provided by The Bancorp Bank, member FDIC.
That may soon change, the company says.
In September 2018, Varo received preliminary approval from the Office of the Comptroller of the Currency (OCC). In February 2020, Varo announced it was the first banking startup to win approval for FDIC insurance. Last month, the company said it was moving to the final stage of its bank charter journey.
"Varo was founded first and foremost to make a powerful impact on systemic financial inequality in communities across this country," said Colin Walsh, founder and CEO of Varo, in a statement. "As the first fully digital bank, Varo will bring our mission of financial inclusion to life and create more financially resilient -- and thus healthier and stronger -- communities. 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," he added.
Pending completion of the conditions required by the OCC, the FDIC and the Federal Reserve, Varo will receive approval to become a national bank.
The company expects this process to complete by summer 2020, at which point it will expand its lineup of services to include credit cards, loans and additional savings products.
Those expansions will help to further differentiate its mobile banking app from a number of competitors, as a large group today remain largely focused on offering checking and savings accounts, not a fuller range of financial products.
Varo is not the only fintech startup that's moving toward becoming a real bank. In March, Square said it had also received approval from the FDIC to conduct deposit insurance. It aims to launch Square Financial Services, offering small business loans, in 2021.
These moves by fintech startups come at a time when the younger generation is ditching legacy banking in favor of tech. Millennials in particular don't trust big banks, preferring instead the fee-free challenger banks offering modern mobile features they've come to expect from all their other apps.
"In the midst of all the economic challenges people are facing right now, the digital economy can still be a force for good. Varo's focus on financial inclusion and the support they offer people to help manage their finances and reduce financial stress really matters at a time when so many American families are struggling in a volatile economy. And that's why RISE chose to partner with the team at Varo,” said Maya Chorengel, co-managing partner of The Rise Fund.
In addition to its expansion into new products, Varo will hire across operations, marketing, risk, engineering and communications following the round's close. It has recently added headcount to its customer care teams.
Varo today counts nearly 2 million banking and savings accounts and is growing rapidly. Since the beginning of 2020, account growth is up 60%, spend is up roughly 1.5x over the same period and deposits are up by roughly 3.5x.