Insurance in the USA, latest news

Varo Money was the first among fintech companies to offer deposits with insurance, other companies are next
What happened. The American fintech company Varo Money has begun offering its customers bank deposits with government insurance. The FT describes this as a “tipping point” in the competition between financial startups and traditional banks.

More details. Varo Money became the first fintech company in the United States to accept government-insured deposits through its Varo Bank. Bank deposits in the United States are insured by the Federal Deposit Insurance Corporation (FDIC).

The company went to this for 3 years and spent more than $ 100 million, said Varo CEO Colin Walsh. He is confident that in the long term, these investments will pay off and allow the company, which now has about 2 million client accounts, to operate for 50-100 years. “If you just want to be bought, that’s another story,” he said.

Last week, another fintech startup, Social Finance, received conditional consent from the Office of Currency Control (OCC, an independent bureau under the US Treasury) to create SoFi-Bank. He will have to apply for membership in the Federal Reserve System and get insurance from the FDIC.

In March, payment company Square received conditional permission to create the bank, which intends to launch its bank in Utah in 2021. Previously, CNBC reported similar plans in the United States from British fintech startup Revolut.

The OCC’s power to issue such consents is being challenged by the states: the New York City Department of Financial Services has already sued the OCC.

Inclusion in the deposit insurance system will allow fintech startups to compete on an equal footing with traditional banks in the US retail deposit market, whose volume is almost $ 16 trillion. Fintech startups are now using other ways to enter the market for accepting deposits from the public. For example, Chime has partnered with FDIC-insured banks such as Stride Bank.

In addition to administrative barriers to entering the deposit market, fintech startups point to a strong lobby from traditional banks. “We see this as anti-competition,” says Lee Carter, executive director of the US division of Japan’s Rakuten. The company claims to have faced opposition from banking groups in its bid to obtain a banking license.

Why should I know this. The example with Varo Money is indicative; regulators of other countries can follow it. The competition between traditional banks and fintech startups is increasing.