Silicon Valley is the world's most developed fintech center and also the centre of business model innovation. In July this year, we went to Silicon Valley to conduct field research on more than a dozen fintech startups founded during 2015 and 2016, and brought back special reports for you to analyze the latest developments in the global fintech industry.
Company Details
Company Name: Varo Money
Founded: 2015
Headquarters: San Francisco, California
Founders: Colin Walsh, Assaf Guery, Mykola (Kolya) Klymenko, Roger Van Duinen
Funding Round: Venture
Funding Amount: $33.4M
Category: Mobile banking
Target: A mobile banking app that aggregates intelligent financial management, automatic deposit, debit cards, credit cards and other functions.
The user-focused mobile banking startup Varo Money was founded in 2015. The company aims to enable users to have greater ability to manage their personal financial life. Users can use Varo Money to aggregate diverse types of bank account information from different banks and enjoy real-time online sales analysis and budgeting. Varo Money has also introduced debit cards, savings, lending and other products.
Colin Walsh, founder of Varo Money, has decades of banking experience. The team members of Varo Money come from well-known financial or Internet companies like American Express, Apple, Wells Fargo, Facebook, Instagram, Lending Club, Morgan Stanley, Lyft, TaskRabbit, Earnest, Providian, Schwab, Motif, Accenture, and Monitise.
Varo Money secured US$27 million in private equity led by Warburg Pincus in 2016, and is expected to complete a further financing round of about US$160 million by the end of 2017.
Business Model
Varo Money is a personal mobile banking application. Unlike PayPal and other fintech companies, Varo Money positions itself as a mobile financial company rather than a technology company. At present, Varo Money provides financial management services for users, including helping users save money on emergencies, setting up financial plans, and providing reasonable advice for users' daily expenses and savings. So far, Varo Money does not charge any fees, and it provides more competitive interest rates than the banks to improve the competitiveness of its loans.
Users can deposit funds on the debit cards of Varo Money and bind other banks' cards on the app. The Vary Money debit card uses the license associated with The Bancorp Bank. In addition, Varo Money also has loan licenses for dozens of states in the United States to provide loans for users with borrowing needs. In the future, Varo Money also plans to offer other services such as student loans and remittances.
Varo Money uses a reinforcement algorithm to guide the users’ savings and communicate intelligently with users by analyzing their expenses. This allows users to get more targeted and informed decisions to achieve specific financial goals. Because many people can't save money to deal with emergencies in the future, Varo Money saves money for the users' emergency spending and helps users save for a specific cost to cope with future risks. On the technical side, Varo Money uses technology provided by Kasisto, a banking smart chat robot company. The intelligent robot "Val" guides users' in a humanized way.
Varo Money wants to do good a job with banking and have a very good user experience. In the current fintech market, fintech companies are too decentralized and the functions of apps are too singular. A survey of 25 million users shows that the general number of personal financial management apps for each person is between four and eight. Varo Money plans to integrate the functions of these four to eight apps into one app, provide saving advice like Mite or Simple, automatic deposit function similar to Digit and P2P transfer function similar to Venmo or Square Cash.
Development
Varo Money went online in Apple Store in June 2017 and there are already thousands of users. An Android version will be launched next year. The official promotion launch of the product will be in October 2017. Varo Money also filed a bank license application to Office of Comptroller of Currency (OCC) on July 25, 2017, as well as a deposit insurance to Federal Deposit Insurance Corporation (FDIC). If the application goes smoothly, Varo Money will be the first mobile banking company with a bank license in U.S. history. The company's development route is like Number 26 in Europe, and they are both dedicated to creating a full range of financial services for individuals. Number 26 has obtained a bank license in Germany.
After the company's business goes online, it will experience a long continuous process of learning and iteration, such as how to prompt or warn users properly without disturbing them, and how to suggest prompt content and its frequency. In the future, Varo Money hopes to initiate a new $160 million funding round and attract global investors outside the US.
Q&A
Below is our interview with Colin Walsh, CEO & Co-Founder of Varo Money:
Q: How does Varo Money conduct loan approval? Do you use other data (e.g. social data) for reference?
A: We get credit reports and credit ratings from credit bureau like TransUnion. For the customers who reach our standard, we combine with their transactions on our platform and give our audit results. The whole judgment process is done entirely by the machine. We currently do not use alternative data. Based on our experience, the effect of using alternative data is not as good, and it will lead to a lot of regulatory issues.
Q: What are Varo Money currently regulated by?
A: Currently, we're only regulated by federal government. However, with the development of business in the future, we may also be regulated by other supervision.
Q: How about Varo Money's Customer Acquisition Cost?
A: At present, the company's business is still not in formal promotion. Of the current thousands of users, the cost of each person is less than US$20 dollars. Our future target customers are post 1980's users. According to our research, many customers are eagerly looking forward to such a bank, so we believe that a lot of people will use our app in the future.
Q: At present, the company only has one cooperative bank, so if the bank has something wrong, has Varo Money considered remedial measures?
A: We have conducted our own due diligence on the banks we cooperate with. In addition, this is indeed a risky problem. Therefore, we are also trying to apply for a bank license so we don't have to rely on other banks.
