Illustration: Annelise Capossela/Axios

Varo Money, one of many upstart challenger banks, received its bank charter effective Aug. 1.

Why it matters: The benefits for Varo Bank (as it can now officially be called) are obvious. Varo now controls its own deposits, and can use them to fund loans; it also has a lot more freedom to innovate, now that it doesn't need to work within a partner bank's APIs.

  • Because Varo has a national bank charter (unlike Square, which is chartered in the state of Utah), it no longer has to worry about being in compliance with 50 different state financial regulators. One federal charter is all it needs.

The benefits for the rest of us are that a large and fast-growing financial player (CEO Colin Walsh tells Axios that Varo's deposits have trebled over the course of the pandemic) is now subject to full regulatory scrutiny.

What they're saying: "Innovation is happening outside the bank charter today," says Brian Brooks, acting comptroller of the currency and Varo's new regulator. "That creates some amount of risk to the financial system. As incentives have grown for people to operate financial services companies in a specialty way, it has become harder for bank supervision to monitor risks."

What's next: Now that the dam has broken, expect more national charters in relatively short order — within the next year or so. SoFi could be next.

  • While it took more than three years for Varo to get its charter, SoFi's is likely to come more quickly. "The early pioneers had to take covered wagons over the Rockies," Brooks tells Axios. "Now we take a plane flight."

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