Filings for Q1 2022: Varo, the first US neobank to be granted a bank charter, had a high $84M burn rate and 98% of its income came from interchange and fees
What the Regulators Should (and Shouldn't) Do to Encourage Competition — Hey all, Jason here. Happy Memorial Day, for my American readers! Tweets: @akindolu , @mikulaja , @cplimon , @dgwbirch , @alexh_johnson , @chris_skinner , @eghosao , and @notgwera Tweets: @akindolu : Very interesting article on Varo. It mentions Dave and Chime as well. I think when doing consumer anywhere, you should go niche. https://fintechbusinessweekly.substack. com/ ... Jason Mikula / @mikulaja : Fintech Biz Weekly just dropped: -@VaroBank, First Chartered Neobank, Could Run Out of Money By End of Year, Regulatory Filings Show. What does it mean for other fintechs? -What the Regulators Should (and Shouldn't) Do to Encourage Competition. Read: https://fintechbusinessweekly.substack. com/ ... https://twitter.com/... Christian Limon / @cplimon : Great analysis from Jason @mikulaja on Varo @VaroBank If you lean-in to an over-regulation strategy (ie, over-regulating yourself), you better invest just as aggressively in execution that exposes the benefits. Seems Varo only executed on the ‘costs’ portion of this strategy. https://twitter.com/... @dgwbirch : Interesting analysis of Varo TL:DR; what's the point of a banking charter if you make most of your money through interchange? (The point of banks is to provide credit, right?) https://twitter.com/... Alex Johnson / @alexh_johnson : This is some great analysis on Varo, a neobank I've been curious about for a while. Stat that blew me away: the average balance in a Varo customer's account was just $83.24 in Q1 2022. https://twitter.com/... Chris Skinner / @chris_skinner : Is the USA challenger bank Varo going to be the first to go bust due to lack of capital? https://fintechbusinessweekly.substack. com/ ... @eghosao : Good post on the challenges associated w/ neobanks. https://fintechbusinessweekly.substack. com/ ... I never understood how any could monetize @ scale w/out lending, a capability that is nontrivial to execute. Valuations went thru the roof & investors were paying $500-1500 per user. $NU cracked it tho. Gwera / @notgwera : fresh deep dive from the talented @mikulaja. the long standing neobank/bank sponsor model is often seen as an early GTM strategy for neobanks but could this possibly be a sustainable operating model as opposed to a neobank obtaining a charter? https://fintechbusinessweekly.substack. com/ ...
Context & Ripple Effects
Varo's Q1 2022 filing lands about eight months after its $510M Series E at a $2.5B valuation brought total raised to roughly $992M — capital raised explicitly to fund the chartered-bank experiment. The bet traces back to the original neobank thesis from 2018, when low fees and high interest let VC-funded players like Chime, Aspiration, Empower, and Varo compete with big consumer banks without owning one.
The filing shows what the charter actually costs: an $84M quarterly burn against $263M in equity, with 98% of income from interchange and fees and just $83.24 in the average customer account. Reporting around the filing suggests the money could run out by year-end absent new funding.
First-order effects
- Varo must either raise again or cut burn imminently — its charter made it a regulated bank holding its own capital, so unlike partner-model peers Chime and Dave, there is no sponsor bank absorbing the balance-sheet burden.
- The OCC and Fed, which granted Varo the first neobank charter, now have their template case running on venture-funded reserves rather than diversified bank income.
Second-order effects
- Rivals still renting partner banks' charters get a live counterargument to going chartered themselves — Chime and Dave can point to Varo's numbers when weighing whether regulatory independence is worth the capital drag.
- Investors pricing chartered neobanks will demand a path beyond interchange, since 98% fee concentration plus sub-$100 average balances means growth spending converts almost directly into cash burn.
Third-order effects
- If the charter-first model cannot reach profitability before the equity runs out, US neobanking consolidates back toward the partner-bank structure — with the charter treated as an expensive differentiator rather than a moat.
- Regulators watching the experiment get evidence for how they weigh future fintech charter applications: capital adequacy against a single revenue line becomes the central question, not product innovation.
The trend: Consumer fintech is colliding with bank-capital economics, as interchange-dependent neobanks discover that owning a charter converts VC subsidy into a hard solvency clock.