On February 7, all-mobile banking services startup Varo Money, Inc. (“Varo”) received the FDIC’s approval of its federal deposit insurance application for Varo Bank, N.A. (in formation) (the “Bank”). The FDIC’s approval positions Varo to become the first fintech to obtain a full-service, FDIC-insured national bank charter.

On September 4, 2018, the Bank announced that it received the OCC’s preliminary conditional approval of its application for a full-service national bank charter. The OCC conditioned its final approval, in part, on the Bank receiving federal deposit insurance.

In order to issue its final approval of the Bank’s charter application, the OCC will hold a final pre-opening examination of the Bank to evaluate whether it has satisfied the financial requirements outlined in the OCC’s preliminary conditional approval. The Federal Reserve also will have to approve Varo’s application to form a parent bank holding company and any other conditions to the agencies’ approvals will have to be satisfied.

The FDIC’s approval of Varo’s application for federal deposit insurance is significant not just because it is the first of its kind. The approval also establishes a path forward for other fintechs seeking to pursue a full-service, FDIC-insured bank charter – whether nationally or state-chartered. Varo, like other fintechs, currently offers depositors online banking services in partnership with an established bank. Obtaining a national bank charter will allow Varo to operate independently.

The FDIC’s approval of the Bank’s application coincides with the FDIC’s release on February 10 of a supplement to the Deposit Insurance Application Procedures Manual. The supplement establishes guidelines for agency staff evaluating federal deposit insurance applications from non-traditional banks and offers recommendations to applicants. Fintechs should look to this supplement when compiling their applications and engaging with regulators.

As we’ve previously noted, the OCC’s special purpose fintech charter is tied up in legal challenges and its future availability for fintechs remains uncertain. Varo’s choice of a full-service, FDIC-insured national bank charter underscores that the OCC’s proposed fintech charter is not a viable path into banking at the present time. Other fintechs will need to choose whether to follow Varo’s path and meet the rigorous requirements of both the OCC and FDIC, wait for a judicial resolution of the OCC fintech charter, or pursue other charter or licensing options.