On July 31, 2020, Varo Money Inc. announced that it was granted a national bank charter by the U.S. Office of the Comptroller of the Currency (OCC). The charter will allow Varo, a mobile banking fintech, to launch a national bank and offer a range of financial services and products that are backed by the Federal Deposit Insurance Corp (FDIC).
The announcement marks a historic moment for fintech companies, as Varo will become the first fintech company to obtain a national bank charter with the OCC.
A national banking charter has a strong appeal to fintech companies. With a charter, a fintech can lower its funding costs, gain access to Federal Reserve payments systems, and operate more uniformly on a nationwide basis with federal preemption of many state laws, including state licensing requirements. Since most fintech companies comply with a patchwork of state licensing requirements and regulations, or opt to partner with state or federal banks who hold banking charters, a national bank charter would better enable a fintech company to chart its own course with more regulatory clarity.
While Varo may be the first fintech company to obtain a national banking charter, it won’t be the last. Social Finance Inc. submitted an application in early July. Relatedly, Square Inc. has received conditional approval from the FDIC to launch an industrial loan company.
While the national bank charter market warms for fintech companies willing to offer deposits, the same has not been true for the OCC’s special purpose national fintech charter. The special purpose charter, initially proposed in 2016, would have permitted non-depository fintech companies to operate under a federal charter overseen by the OCC. However, the program faced criticism and lawsuits from state regulators, which continue to plague the special purpose charter. Click here for our prior coverage of the litigation.