Office Hours: Varo CEO Colin Walsh On Disrupting Traditional Banking for Younger Users
Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.
Colin Walsh brought 25 years of traditional banking experience to the launch of his online banking platform.
On this episode of Office Hours, the founder and CEO of Varo joins host Spencer Rascoff to talk about how the startup became a chartered bank and why younger generations are changing the financial services industry.
Walsh started his career at GE Capital and eventually made his way to Wells Fargo and American Express, where he oversaw the European consumer market. That background in traditional banking gave him the understanding of the industry and multiple cultures within it— including access to several broad networks of contacts and experience through a number of business cycles. Walsh said that gave him the background necessary to disrupt the space. He started looking at ways to help younger consumers reach financial stability and make banking more accessible.
“Even though I was doing a number of interesting, exciting things, it was becoming very clear to me that the system was pretty broken for people who did not have wealth and income, and it really was a system of haves and have nots,” Walsh said.
After advising other companies, Walsh started raising funds to launch the online banking platform Varo. Initial funding came from his family and friends. Many institutional investors were wary of funding banking startups due to a number of new hurdles federal regulators have put in place since after the 2008 financial crisis, Walsh said.
Walsh said he talked to a number of VCs, but found only limited support and skepticism about a process, chartering a new bank, that had been hamstrung since the last financial crisis. He realized it would take more money and time.
“And so I picked up the phone and called my friends at Warburg [Pincus], and said, 'Hey, I want to create this bank of the future'. And they said, 'Well the timing is good, because we have a whole thesis at the company right now that we're looking to invest in the bank of the future'. And that was the beginning of what turned out to be a relatively quick time from concept to term sheet,” Walsh said.
The private equity giant was able to provide Varo with resources, expertise and credibility that would be crucial to the startup’s success.
“It's all about credibility,” Walsh said. “Regulators clearly have taken a very cautious stance in terms of who they're letting into the system.”
“I pretty quickly learned that you get a fairly fast pattern recognition, when you're told the same thing over and over again, by a certain type of investor that you probably have to go start fishing in a different pond,” Walsh said.
Varo started out using a partner bank, relying on its charter and its technology to test out its product, build up a consumer base and outsource regulatory risk. But Walsh was insistent on Varo becoming a fully chartered de novo bank.
“We're the only fintech that actually made it through that very difficult journey,” he added.
The process is expensive and time-consuming, but Walsh said it benefits both Varo and its consumers. Varo no longer has to share economics with its partner bank and can tailor its technology to its users’ needs.
“For us, it was really about intentionally designing a platform that would help folks lower their costs,” he said. “Like giving them early paychecks, giving them access to faster payment capabilities, being able to start building savings habits and having the tools and incentives to begin saving to help build credit to be able to access credit.”
Walsh said there is a growing demand for platforms that can help younger consumers gain more agency in their financial journey. As Gen Z ages and begins to get serious about finances, Walsh said many people are looking for an alternative to traditional banking methods—one that can be managed through their phones.
“Now you have this very, very large group of consumers that have no incumbent loyalty to the traditional banks,” he said. “They don't want to get in a car and drive to a parking lot and get out and sit behind a desk and spend an hour filling out an application.”
Office Hours Host and dot.LA co-founder Spencer Rascoff is an investor in Varo.
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dot.LA editorial intern Kristin Snyder contributed to this post.
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Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.
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