Illustration: Rebecca Zisser/Axios

The FDIC has given Varo Money its official seal of approval, according to Varo CEO Colin Walsh.

Why it matters: It's the crucial second step for Varo to become a national bank, following the Office of the Comptroller of the Currency granting its own preliminary approval back in October.

  • Up until now, digital banks have had to piggyback on older, more established banks for their banking operations. (Or else, like Goldman Sach's Marcus and BBVA's Simple, they're subsidiaries of bigger banks.)
  • Varo Money is now set to receive the first "de novo national bank charter" ever given to a fintech startup. That should give it a level of freedom and flexibility its competitors lack.

Background: Digital banks have dreamed of this day since Bank Simple first launched in 2012, but it's been a long time coming. While Goldman Sachs received its bank charter in one day in 2008, the process for Varo Money has taken more than three years.

  • Bank regulators have worried that VC-backed startups are too thinly capitalized to survive a crisis or avert a bank run, or that they lack the necessary depth of banking expertise. Varo has now shown that those concerns can be addressed.

What they're saying: "From a regulatory perspective, this is a recognition that technology-driven banking is now mainstream," Walsh tells Axios. "This has been a three-year process, and we've spent tens of millions of dollars on it. That's something of a moat for us. It's hard to find investors willing to put that kind of money upfront without the certainty of reaching the finish line."

Be smart: The move means that Varo will finally control its own deposits, and it will be able to use them to fund loans. That will give Varo a significant advantage over other challenger banks like N26, Aspiration and Chime.

What's next: Walsh sees final approvals coming in Q2, at which point accounts will start being transferred over from Bancorp, Varo's current partner bank. Once Varo has access to all of its customers' data and money, it will start being able to offer new products like credit cards, joint accounts and certificates of deposit.

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