Extending Lending to Varo Users

Lending is where a neobank stops being a low margin card business and starts looking like a real bank. Varo already gets most of its revenue from non interest income, with only $19M of 2023 revenue coming from interest income versus $110M from interchange and fees, so adding more credit products is the clearest way to raise revenue per user without having to win an entirely new customer. Its bank charter matters here because it can hold deposits, underwrite loans itself, and keep more of the economics.

• The practical advantage is data. When a customer sets up payroll direct deposit, Varo can see paycheck size, timing, spending categories, cash flow gaps, and repayment behavior inside the app. That gives it a more detailed underwriting picture than a lender relying mainly on a traditional credit score.
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• The comp set shows how large the step up can be. Nubank generated $1.6B from lending in 2023, more than its $1.2B from interchange, and Monzo grew lending revenue from £38M in 2021 to £168M in 2022. In both cases, credit turned an engagement product into a much bigger revenue engine.
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• Varo has already started down this path. It launched Varo Line of Credit in 2024 with limits of $600 to $2,000, and also offers Varo Advance for smaller short term borrowing. The move is especially important because its existing base is large, 7M users, but still under monetized relative to full service banks.
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The next phase for U.S. neobanks is not more free checking, it is turning primary account relationships into repeatable credit distribution. If Varo can keep growing from paycheck linked advances into larger credit lines and other loan products, it can move closer to the revenue mix and customer economics that made Nubank and Monzo materially stronger businesses.