Inside Varo’s Mission to Bank the Financially Vulnerable
By Justin Estes, Contributor at The Financial Brand
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Executive Summary
- The journey from traditional banking executive to fintech founder is rarely straightforward, but few have navigated a path as complex as Varo’s former CEO Colin Walsh’s.
- In an episode of the Banking Transformed podcast recorded live at The Financial Brand Forum 2025, host Jim Marous spoke with Walsh about his transformation from a seasoned banking professional to the leader of the first fintech company to receive a national banking charter.
- As the financial services industry continues to evolve, Walsh’s journey with Varo demonstrates both the challenges and opportunities in serving America’s financially vulnerable populations through purpose-built digital banking platforms.
From Traditional Banker to Fintech Pioneer
Q: What drove you to leave traditional banking and start Varo?
Colin Walsh: It is all characterized by taking on some of the toughest, complex challenges that nobody else wants to do. And so, Varo was just one of those. I started my career at GE Capital and I worked on creating the first industrial loan bank through GE and the first corporate card then I found myself, I did a stint at Amex, went to Wells Fargo, and after the laws changed, launched the first home equity product in the state of Texas that took number one market share.
Then I launched the first consumer credit business through Wells online, so we transitioned from a basic PowerPoint presentation to a business with approximately $2 billion in revenue. I went to Lloyd’s, where I was running the cards and payments businesses at Lloyd’s Banking Group. One day, I woke up to find myself integrating the two largest banks in the UK, having acquired our competitor, HBOS.
And then I decided to return to the United States, moving back to San Francisco and starting Varo. We started in 2015, initially operating as a traditional fintech, establishing relationships with Bancorp and Galileo.
Q: How did your experience at major institutions like Wells Fargo and Lloyd’s prepare you for building a fintech?
Walsh: It was after having spent many years doing all these different things that I talked about in financial services, it felt like for me, I wanted to have an impact and focus on advancing financial inclusion and economic opportunity and creating a digital platform that would allow us to serve a group of consumers that many traditional bankers shied away from.
I think what differentiated us was the bank’s focus, as we were building a business. However, in parallel, again, all true to form, we were trying to take on something nobody else had done before and everybody said was crazy. We underwent a three-and-a-half-year process to obtain our bank charter.
Serving the Financially Vulnerable
Q: Who exactly is Varo’s target customer and why don’t traditional banks serve them well?
Walsh: I mean, they’re the Uber driver, they’re the person working at Walgreens or Walmart, they’re the dog walker whose clients pay them using Zelle. These are people that are more financially vulnerable, they’re living paycheck to paycheck, they’re having to make trade off decisions every day about do you buy medicine, or do you fill up your gas tank or “Am I going to have enough money to put food on the table for my family?” These are similar to real-world decisions made by people under extreme financial stress.
You’ve got 180 million people in this country right now who are living paycheck to paycheck and that spans all demographics. It also affects a wide range of income brackets, as even individuals earning six figures often face financial pressures and indebtedness. You also have 45 million people in this country who are considered credit invisible, meaning they either have extremely thin files or no credit file at all.
Q: What unique challenges do paycheck-to-paycheck consumers present for a financial institution?
Walsh: Another aspect of this segment is that they log in constantly, so they’re always in the app. If there’s any disruption in terms of access to money, they’re on the phone, calling and complaining that people need cash immediately. Therefore, if you place holds on ACH transfers, RDC check deposits, or debit card transactions, it drives churn among this customer audience.
They also tend to be a little more susceptible to fraud and scams because they are seeking more money. And if someone says, “I’m going to give you $500,” it’s like, “Oh, well, click here. I’ll give you my information because I need access to money,” and then you also see more disputes. So, for all the traditional bankers in the room, they’re like, “These are all the reasons why we don’t go near this segment.”
And it’s like but to do that well, you have to build a highly efficient digital platform that allows you to introduce these services at very low cost, you have to be able to track process transactions extremely quickly, you have to be able to detect fraud very rapidly and have the right interventions that don’t lock people out of their accounts.
AI-Powered Lending and Fraud Prevention
Q: How is Varo utilizing AI and machine learning to make more informed lending decisions?
Walsh: We have multiple self-learning models that operate in real-time to assess the risk of each customer and personalize their credit journey, understanding both their capacity to pay and their willingness to pay based on all their transactions.
So, we’re ingesting all of this transaction data from our customers, which feeds into something called Extreme Boost. It’s a machine learning model often used in healthcare solutions that we’ve adapted for our underwriting solutions. Still, it’s all based on transaction data and it helps us make excellent credit decisions.
We’re rapidly expanding our lending book. It’s driving the kind of retentive behaviors because customers realize that as they do more banking with us, as more transactions is coming through the platform, we’re giving them a more personalized, curated set of like, “Okay, you do these things, you’re going to get access to more credit.”
Q: What role does technology play in managing fraud while keeping customers’ accounts accessible?
Walsh: Building tools to make sure that you block the bad actors at the front door as much as you possibly can. And that has been difficult in a world of deepfakes, as fraudsters are investing in AI as much as the good actors are, making it a lucrative business for them.
However, we found that we were seeing driver’s licenses and passports, traditional ID mechanisms that were very realistic, but they were not genuine. And so, then, having to think more broadly about the tooling around digital identity and what you need to do to verify identity at the front door.
Building technology and tools that allow you, again, to focus on speed while also managing fraud has been an area where I think we’ve built a real competitive advantage.
Dig Deeper:
- Colin Walsh Shares the Status of Varo’s Trailblazing Journey
- Direct Banks Lead Customer Satisfaction Race, Ahead of Neos
- How to Grow in 2025? 3 Bank CEOs Focus on Product Innovation, Non-interest Income
Why Traditional Banks Struggle with Digital Innovation
Q: What prevents traditional banks from successfully building fintech-like offerings internally?
Walsh: The traditional institutions, particularly the larger ones, are extremely siloed. So, you have, I remember my days when I ran a credit card business or a home lending business, or whatever and you thought of it as your customer. Well, actually, that customer probably had multiple relationships with the institution, but the internal lens was always focused on their silo, whatever they were doing and there was a lot of internal politics surrounding that.
And when I mentioned at the beginning, when I launched that online consumer credit business, oh my God, were they on my case about it, like all of a sudden, the branches were not getting credit for these loans. I’m like, “Well, yeah, but these are the customers. This is what they want. These are the talent they prefer.”
Q: Can you give examples of failed digital banking initiatives from traditional institutions?
Walsh: A friend of mine started Buddy Bank and UniCredit in Milan and he had a really good idea. And it was working and they pulled together some of the best engineers in Italy and then somebody at the board of UniCredit says, “Why are we spending all this money? Just use our core banking system?” Well, that was a case of that.
I mean, that basically killed the whole issue because they tried to export all this legacy technology and so all the good engineers left and the systems weren’t able to adapt to a true digital-first mindset. Finn is another example. Wells Fargo quietly sunset its digital bank and TD had a digital bank that it pulled the plug on, so many of these have been discontinued.
But it’s like, when you ask the question what are the things that prevent, it’s silos, it’s data silos, it’s politics, it’s organizational turf.
Trust, Competition and the Future of Digital Banking
Q: How does a fintech like Varo build trust with consumers who may be skeptical of new institutions?
Walsh: Trust is at the heart of any banking operation. When somebody’s trusting you with their money, they need to know that you’re going to be there for them. And so, I think in the macroeconomic context that we’re living in right now of just extreme uncertainty, it becomes harder to sort of say, “Okay, we’re going to be here for you.” But then it really boils down to doing what you say and your actions are going to speak a lot louder than your words.
Going back to some of these first principles around making sure people have access to funds, if you can give access early to funds, if you can give people lines of credit and hold them and make sure that they’re not fluctuating all the time, that you can give people the tools that they need to be able to create greater financial resilience.
Q: What does the future look like for digital-only banks and market consolidation?
Walsh: I think we will see some consolidation. I believe that you’ll see that digital is here to stay and it is the future. You look at not only the issues I discussed in terms of constructing a digital platform that can move money quickly, safely and fairly, but also consider this generational shift.
You’ve Gen Z and millennials, who are now 18 to 45 and they’re mainstream consumers who do not want to deal with traditional banking solutions. I mean, they want to do everything on their phone. They want everything to be instant.
There’ll likely be a combination of some of the big players that are going to continue to invest and continue to evolve their digital capabilities in the market segments that they serve well. I think you’ll see players; there will be a handful of players who will come up to achieve a level of scale, to have a meaningful impact on the marketplace and we kind of know who they are.
