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Varo generated $129M in gross revenue in 2023, growing 27% year-over-year from $101M in 2022. Varo reported a $105.2M net income loss for the year.

$19M of Varo's revenue came from interest income and $110M came from non-interest income.

Roughly 80% of their non-interest revenue would have come from interchange, while roughly 20% would have come from fees on out-of-network ATM withdrawals, deposits from 3rd party money transfer services, and OTC money withdrawals.

Varo was valued at $1.8 billion as of March 2023, representing a decline from its $2.5 billion valuation in September 2021. The company has raised a total of $1.041 billion across nine funding rounds to date. Warburg Pincus has been a significant investor, participating in the company's Series E-II funding round in March 2023. Other notable investors include HarbourVest Partners, Gallatin Point Capital, and BlackRock. The company maintains relationships with 16 investors in total.

Varo was co-founded by Colin Walsh (now CEO), Assaf Guery, Mykola Klymenko, and Roger Van Duinen in 2015 to offer a mobile-based, consumer-friendly neobank.

Varo bank accounts have no monthly fees or minimum balance fees, and users can access ATMs without fee through the 55,000-strong Allpoint network.

In 2020, Varo became the first American fintech to gain approval to become a nationally chartered bank—allowing Varo to steward their users’ funds (and collect interest on them directly instead of by splitting that interest with another bank) and collect a larger share of interchange from debit and credit transactions done with their branded card.

Most fintechs that operate checking accounts for users partner with a bank like Bancorp or Cross River Bank—the bank holds all consumer deposits on its balance sheet, taking on the liability and compliance work of operating a bank, while the fintech operates as a marketing and UX front-end that brings in customers more cheaply (around ~$100 CAC). Both interchange and deposit interest are then split between the neobank and the banking partner on the back-end.

Varo offers consumer banking products through its mobile app and cards. Varo’s products include:

Distinctions between American neobanks tend to be minimal—in Varo’s case, it is differentiated by the fact that it is a nationally chartered bank, which allows it to collect a higher percentage of the interchange and earn more interest on its customer deposits. 

At 7M users, Varo is smaller than the biggest American neobanks—see Chime with 14.5M users and Dave with 10M—but bigger than Current with 3.7M. Varo has roughly 17% share of all digital checking accounts in the United States.

Incumbent banks like Chase and Capital One are closing the gap on their neobank competitors by improving their own digital offerings—In H1 2022, Capital One’s app had 7.7M downloads, Chase’s had 6.3M, and Bank of America’s had 5M.

Varo also faces competition from fintechs that have verticalized given the proliferation of horizontal neobanks like Chime and Varo—these include apps like Daylight, which is focused on the LGBT community, Betterment, which is focused on automating investments for higher-earning consumers, and SoFi, which focused on helping students with their loans.

Lending

The biggest TAM expansion opportunity for neobanks like Varo is extending lending to their existing user base. Nubank (NYSE: NU) made $1.6B from lending in 2023 (compare to $1.2B from interchange), making up 20% of their total $8B in revenue.

A key advantage that neobanks like Varo have when it comes to lending is that with direct deposit enabled, they have a direct view into their users’ finances end-to-end—from all of their wages and what they’re getting paid to all of their expenses.

Unlike a traditional FICO score that onlys judge a user’s creditworthiness based off a limited set of payments like mortgages or car payments, neobanks like Varo can use a wider range of payments—like Netflix or Hulu subscriptions—in order to extend loans to more people.

Reduction in consumer spending

Because of Varo’s dependence on interchange revenue, Varo’s business could be hit hard as consumers scale back their spending in an uncertain economic environment. Also, its paycheck to paycheck customer base is the first to reduce excess spending as recessionary pressures grow in the economy. 

Decline of primary bank account 

With more and more Americans opening up multiple accounts across banks, brokerages, crypto apps, and others, the concept of one account being their ‘primary account’ from where they make most of their purchases is depreciating. Customers prefer to move their money (and apps are empowered to move their money with payroll APIs like Pinwheel) to different apps/accounts that provide them better offers/cash-backs/convenience rather than sticking with one bank account.