Varo Struggles On As Founder Colin Walsh Steps Down As CEO
McKernan Resigns From FDIC Board, Nominated To Lead What’s Left Of CFPB
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Artificial intelligence, even as we quibble about the exact definition of the term, seems increasingly likely to impact nearly every aspect of work and day to day life, equalling or exceeding the impact of the widespread adoption of touchscreen smartphones beginning nearly 20 years ago.
But, like with any technological revolution, it can be difficult to parse hype and bluster vs. real, economically impactful use cases.
In this upcoming edition of Taktile’s Expert Talks series, I’ll be joined by industry experts Francisco Javier Arceo (Red Hat), Max Eber (Taktile), John Sun (Spring Labs), and Todd Phillips (Georgie State University) to discuss where AI and financial services are heading in 2025.
Varo Struggles On As Founder Colin Walsh Steps Down As CEO
In early 2024, Colin Walsh, the founder and CEO of Varo, told The Financial Brand he thought the fledgling neobank would reach profitability that year.
Walsh even teased an eventual IPO, saying, “We have more runway in front of us yet, in terms of business maturity. If we get to profitability this year, we’ll want to continue to scale and show predictable results before going into the public markets.”
Now, he’s stepping down as CEO of the first fintech to win a de novo charter, though he’ll remain on Varo’s board. Walsh told an industry trade publication he’s “excited” to focus on other board and advisory work.
Walsh will be succeeded by Gavin Michael, who has spent the last four years as CEO at crypto exchange Bakkt.
Michael will have his work cut out for him.
While Varo highlighted a 22% increase in revenue, 38% improvement in net income, and 31% reduction in customer acquisition costs in 2024, it is still far from profitability, posting a net loss of $65 million last year.
While an improvement from the more than $100 million Varo lost in 2023, it’s still a long way from the profitability now-former CEO Walsh had hoped to achieve in 2024.
The improvement was primarily driven by rising revenue, $154.8 million in 2024 vs. $129 million in 2023, and shrinking non-interest expenses, $200 million in 2024 vs. $215.7 million in 2023.
The largest cost reduction was from employee salaries, with Varo spending a bit over $78 million on salaries and benefits in 2024 vs. $95.5 million in 2023.
While Varo’s reported number of accounts increased 20% vs. the end of 2023, its total deposits increased by less than 4%, suggesting the customers it’s acquiring either aren’t actually using the accounts they’re opening at Varo or are keeping very little money in them.
The average account balance at the end of 2024 was a paltry $65, with the average revenue per account for 2024 working out to about $32.
Varo’s total assets ended 2024 at $447 million — about 8% lower than the year prior.
Despite securing its bank charter about four years ago, Varo remains primarily an interchange-driven business: more than half of its revenue (55.8%) in 2024 was derived from interchange.
A mere 10% of its revenue came from interest income, though the categorization is a bit misleading, as its Varo Advance small dollar loan product charges a fixed fee, not interest, and is thus categorized as an account service charge.
Varo reported about $42.6 million, or 27.5% of its revenue, was derived from account service charges in 2024, and reported about $15.6 million of interest income.
Varo has continued to grow usage of its Varo Advance small dollar loan and Varo Believe secured charge card/credit builder product.
Total balances outstanding at the end of 2024 were shy of $40 million for the card product and $37 million for the small dollar loan product.
But charge offs for both products remain elevated. Varo Believe had an annualized charge off rate of 2.37% in Q4 2024, up 72 bps or 43% vs. Q4 2023.
The Q4 2024 charge off rate for Varo Advance improved by 7.38% percentage points or about 21% vs. Q4 2023, though the rate has fluctuated significantly quarter to quarter.
Gavin Michael, Varo’s new CEO, has limited room to maneuver.
On the expense side, the two major levers to pull are employee compensation and marketing expense — but both of these have already been significantly reduced compared to prior years.
It seems exceedingly unlikely Varo can cut its way to profitability; rather, it needs to grow to an asset size that’s more appropriate for its fixed cost base.
But despite spending $19 million on advertising and marketing in 2024, Varo’s deposits barely budged and its assets shrank.
With a net loss of $65 million in 2024, Varo ended the year with $60 million in bank equity, which included a $6.5 million transfer from its banking holding company. As of the end of 2024, Varo’s bank holding company, Varo Money, Inc., held about $1.1 million of cash.
Absent raising additional capital, Varo’s approximately $60 million in equity gives it a frighteningly short runway, given it lost nearly $18 million last quarter.
Varo’s most recent capital raise was the $50 million round led by Warburg Pincus nearly exactly two years ago (reflected in Varo Bank’s 6/30/2023 call report.)
That investment carried a headline valuation of $1.8 billion, as exclusively reported by Fintech Business Weekly at the time. The 2023 round was already at a significant discount compared to Varo’s peak valuation of $2.5 billion from the $510 million round it announced in September 2021.
Since Q1 2023, when the $50 million round was being negotiated, Varo has seen its assets shrink by about $116 million, or about 20%, and deposits shrink by nearly $60 million, or about 15%.
While the overall fintech investment and valuation climate has improved since 2023, it’s unclear whether this more optimistic outlook would extend to Varo, given its consistent struggle to grow.
Banks are commonly valued as a multiple of tangible book value. As of January 2025, regional banks had an average valuation multiple of 1.13 times book value, though smaller community banks often have a lower multiple.
With total tangible assets of about $432 million and total liabilities of about $387 million, Varo has a tangible book value of just $45 million — suggesting when, not if, it needs to raise additional capital, it may be at a substantially lower valuation than even its last round.
A representative for Varo declined to comment on the bank’s capital position or fundraising plans.
Regulatory Musical Chairs: McKernan Resigns From FDIC, Nominated To Lead What’s Left Of CFPB
President Trump’s banking regulatory leadership is beginning to fall into place.
The last time around, Trump’s choices certainly fell on the conservative end of the spectrum, but were, for the most part, fairly conventional choices:
Jelena McWilliams led the FDIC as Chairperson
Joseph Otting led the OCC for most of Trump’s term as Comptroller, followed by Brian Brooks’ brief stint as Acting Comptroller
Mick Mulvaney briefly led the CFPB in an acting capacity, before Kathy Kraniger’s tenure as director
and Jerome Powell was appointed by Trump as Chair of the Federal Reserve, with Randal Quarles appointed as vice chair for supervision
Trump’s administration is off to another chaotic start, and financial services regulators are no exception. The ongoing chaos at the CFPB has been well documented, and, on Friday, about 8% of FDIC staff accepted the Trump administration’s “buyout” offer. FDIC acting Chair Travis Hill said the agency “will be smaller” after additional restructuring.
As covered last week, at the OCC, Trump’s Treasury Secretary, Scott Bessent, named former National Credit Union Administration chair Rodney E. Hood as Acting Comptroller.
Now, Trump has officially nominated Jonathan Gould, a former senior deputy comptroller and chief counsel at the OCC from 2018 to 2021 to be Comptroller of the Currency. After he left the OCC, Gould served as chief legal officer at blockchain infrastructure company Bitfury, before decamping to white shoe law firm Jones Day.
Last week also saw FDIC Director Jonathan McKernan resign, as, by statue, the FDIC board can have a maximum of three directors from the same party. The FDIC’s board is composed of a Chairperson, two directors nominated by the president (one of whom is named as Vice Chair), the Comptroller of the Currency, and the Director of the CFPB.
As leadership at the OCC and CFPB has turned over, the math of the FDIC board no longer worked for McKernan to keep his director slot.
But his absence from the FDIC seems likely to be temporary. Shortly after stepping down from the board, McKernan was nominated for the CFPB Director role — which, assuming he’s confirmed, would put him back on the FDIC board.
Drama has roiled the CFPB since Trump terminated Director Rohit Chopra. Secretary Treasury Bessent briefly stood in as acting Director, until Russ Vought, an architect of Project 2025, was confirmed by the Senate to lead the Office of Management and Budget, and was named to the CFPB acting Director role.
CFPB employees have been instructed to functionally cease all work, and Bloomberg Law’s Evan Weinberger has reported Vought is planning a “mass layoff” at the bureau. Vought also announced that he had sent a letter to the Federal Reserve, requesting no further funding allocation, though the move has been viewed as more performative than substantive, given the timing and the bureau’s approximately $700 million in cash on hand.
Which is all to say, if McKernan is confirmed to lead the CFPB, it’s not clear what will be left for him to lead.
Trump still hasn’t named a vice chair for supervision at the Fed. Consensus was, if he named anyone, it would be current Fed Governor Michele Bowman.
But, after comments Fed Chair Powell made at last week’s Congressional hearings, it’s looking more likely Trump may refrain from naming someone to the role altogether.
Asked by Rep. Bill Huizenga about the need for a vice chair of supervision, Powell said there was “less volatility” in policy before the role was created by 2010’s Dodd-Frank. Powell also remarked that the Fed operated for many years before the creation of the role and, he believes, did so effectively.
While not a banking regulator, Trump nominated Brian Quintenz as chair at the Commodity Futures Trading Commission, which oversees derivatives and cryptocurrencies that are considered to be commodities, including Bitcoin.
Quintenz previously served as a commissioner on the CFTC, after which he joined venture capital firm Andreessen Horowitz, a major crypto investor. He also sits on the board of “prediction market” site Kalshi.
Other Good Reads & Listens
Trump Advisers Eye Bank Regulator Consolidation After Targeting CFPB (Wall Street Journal)
Shutting Down CFPB Is Not Like Shutting Down USAID (Credit Slips)
Debanked by the Market (Credit Slips)
Congress Narrows in on Stablecoin Legislation: An Analysis of the STABLE and GENIUS Acts (Troutman Pepper)
Listen: Digital Banks and Founders Changing the World of Banking: bunq (Breaking Banks)
Listen: Will the State Attorneys General and Other State Agencies Fill the Void Left by the CFPB? (Consumer Finance Monitor)
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