WASHINGTON — While policymakers are still busy debating how fintechs should be regulated, one firm has decided to push ahead with its own plans.

A mobile-only financial institution called Varo Money announced Tuesday that it has filed formal applications with the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. to become a national bank.

“We'd be the first national bank in U.S. history that is designed for people who want to bank on their cellphones,” Colin Walsh, its CEO and co-founder, said in an interview. “We're suddenly now putting a personal banker in your pocket.”

Colin Walsh, co-founder and CEO of Varo Money.
Colin Walsh, co-founder and CEO of Varo Money.

The company’s research found that discrete money apps were not responding holistically to the needs of millennials.

“We're trying to create a faster, more affordable way of managing money,” Walsh said. “The fintechs, they're doing some really cool stuff, but it's really narrow.”

Though it would dispense with brick-and-mortar branches, Varo Money plans to follow a traditional bank model in other fundamental ways.

It would take deposits, cash checks and make loans. Its core products would center around direct deposit and savings accounts, as well as unsecured lending.

That is why Varo is aiming for a traditional national bank charter, which will require approval from both the OCC and the FDIC, rather than pursuing a fintech charter, which is still a work in progress at the OCC.

"The bank charter will simplify our model and allow us to offer a fuller suite of products on a nationwide basis,” Walsh said.

But it remains to be seen whether regulators — particularly the FDIC, which has granted deposit insurance to just a trickle of new banks since the crisis — are ready for a mobile-only bank.

Walsh said that he has already started talking to them and that he is aware of the challenges his bank faces.

“It is such a high hurdle,” he said. “This is incredibly demanding and complicated, and both the OCC and the FDIC have been very clear that while they're interested in what we're doing, it's not going to be easy.”

But Walsh says he is confident that his team has the institutional know-how to convince regulators that their business model is sound.

Before turning his attention to fintech, Walsh spent nine years as an executive vice president at Wells Fargo. He later worked for Lloyds and American Express.

“My hope after having spent so many years in the industry is that it really does start to move the bar and we see more focus on customer outcomes, helping solve consumer problems,” he said.

The company, launched in October 2015, already has a risk and compliance adviser and head of banking products, who spent more than a decade at American Express.

So far, Varo Money has raised $28 million in equity and venture debt facility. The funding round was led by the private equity firm Warburg Pincus, but also included a $5 million investment from a Silicon Valley bank, Walsh said.

Given its tech focus, Varo Money was also able to take its product out for a test run — which might help it make its case to regulators.

The company introduced its app in the Apple store last month. It has racked up thousands of users, who “not only have downloaded but have applied for the bank account” and even provided the company with a modest source of revenue.

The company has been able to open up accounts for users, and even issue debit cards, through a partnership with The Bancorp Bank, a $4.4 billion-asset institution in Wilmington, Del. It has also obtained several state licenses to issue consumer loans.

Walsh is hopeful that regulators are changing their tune on fintech. Just last week, acting Comptroller of the Currency Keith Noreika, who took office in May, said he supported the agency’s plan to issue special-purpose national bank charters to fintech companies.

And he even went further, encouraging companies to apply for traditional charters while the fintech charter is being challenged in court by state regulators.

“I don't know the regulators were really ready until within the last year,” Walsh said.

Varo Money will join another fintech, SoFi, that is seeking deposit insurance from the FDIC.

That application has already drawn opposition from community bank groups, but Varo might avoid that fate. SoFi applied for an industrial loan company charter, the controversial charter that Walmart unsuccessfully tried to purchase on several occasions.

Lalita Clozel

Lalita Clozel covers fintech regulation, anti-money-laundering, cybersecurity and the Federal Deposit Insurance Corp. in American Banker's Washington bureau.