Varo Taps Growth Capital to Scale Its Line of Credit Business

All-digital bank Varo has received $123.9 million in financing in a Series G round. Warburg Pincus and Coliseum Capital Management led this round of financing bringing the total funding for Varo to $1.1 billion, Varo plans to use its latest round of funding to scale its banking and lending platform, Finovate reports.

“We are thrilled to join Warburg Pincus as long-term, collaborative partners and support Varo’s work to expand its customer value proposition and to further differentiate from traditional banks,” said Chris Shackelton, Co-founder and Managing Partner at Coliseum Capital Management, to Finovate. 

“We believe Varo is building a resilient and scalable platform from which to capitalize on a significant market share opportunity.”

But it was not all good news with Varo. The digital bank posted a fourth quarter net loss of $20.8 million. This loss was an increase of 16.2% from a year ago, according to American Banker.

What Varo Offers its Banking Customers

Launched in 2017, Varo is an all-digital bank that markets itself as having no surprise fees. According to its website, cash advances and lines of credit are available in minutes from Varo Advance and Varo Line of Credit.

Varo also offers the Varo Visa Believe secured card and high-yield savings accounts. Varo charges no monthly fees, no minimum balance fees, or overdraft fees. 

“Everything we do ties back to that mission of helping customers find financial resilience,” said Gavin Michael, Chief Executive Officer, on the Varo website. 

Varo is a chartered bank with a digital platform.

“Varo has built something rare: a technology-first customer experience paired with the governance and risk discipline of a nationally chartered bank,” said Varo Bank Board of Directors Alice Milligan and Kevin Watters to Finovate.

Impact on Subprime Lending

Varo lends to subprime borrowers with its secured credit card, cash advances of up to $250 and its lines of credit. In fact, Varo has a whole section on its website explaining how to get a loan with bad credit.

So subprime consumers are a definite target for Varo and its lending products, and that can be expected to continue with its most recent round of financing.

Varo also encourages people with bad credit to sign up for a Varo checking account, noting customers shouldn’t be limited by their pasts. So banking products geared toward subprime is another aspect of the company that may be promoted with its latest round of financing.

Also of note, there is no credit check when a consumer applies for a banking account with Varo. Other banks use the ChexSystems to assess the risk of opening new bank accounts, but Varo does not.

The Bottom Line

Varo, a digital and chartered bank, has secured $123.9 million in financing and this brings its total funding to $1.1 billion. The company plans to use this money to scale its lending and banking platform. Varo targets subprime borrowers with its banking and lending products, and this is expected to continue with its latest round of financing.