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Varo made $101M in 2022, growing 33% over the end of 2021, when Varo made $75M. At ~7M accounts, Varo’s ARPU is around $14—compare to an average of $20-$30 for neobanks like Revolut and Monzo.

In 2022, Varo made $7.8M from interest—mostly from customer balances held in other banks collecting interest.

Roughly 80% of their non-interest revenue—which amounted to $93M—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.

Note: The horizontal axis has a logarithmic scale for visual clarity.

Varo last raised $510M in its September 2021 Series E. The round was led by Lone Pine Capital—other investors included Declaration Partners, BlackRock, Edirdge, and Marshall Wace. Prior investors in Varo include The Rise Fund, Gallatin Point Capital, Warburg Pincus and HarbourVest Partners.

Varo’s valuation from that 2021 round was $2.5B, meaning it was priced at a revenue multiple of 34x. Since the peak of the fintech valuation cycle in 2021, many fintechs have lost value—for example, Stripe cut its valuation by one-third to $63B, while Klarna raised at $6.7B, 85% below its peak valuation of $45.6B.

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 hit $1.31B in gross revenue in Q3 2022, driven largely by lending income growing 234.7% YoY to $987M, which was more than 3x faster than other income.

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.