Ain’t Your Daddy’s Banks: A Deep Dive into Chime, Current, and Varo

Remember the good old days of free pens on chains at the bank, or lollipops at the drive-thru? Cute, but… what about getting your paycheck a couple of days early, or bouncing off costly overdraft fees like a Superball? Yeah, I thought that might get your attention.

These are actually standard perks from financial technology companies like Chime, Current, and Varo, who’ve been stomping up the stairs to the big leagues in recent years. “Neobanks”, they call ’em – spurring an evolution in banking with their eyes set on outstripping the banking big guns like Wells Fargo. Their appeal? Flexibility, control and a big neon sign saying “Welcome Y’all”, aimed at middle-class Americans. Different to your parents’ banks? Most definitely, and that’s not by accident.

Harvard Business School’s very own Marco Di Maggio tells us the rapid growth of neobanks is all about people wanting something new from banking. With a growing distaste for traditional banking behemoths like Bank of America and JPMorgan Chase, especially among Millennials and Gen Z, it’s no surprise these fresh-faced alternatives are all the rage.

Lucky for us, every day’s an all-you-can-eat buffet of modern banking choices, each tantalizing with unique features. To help you gorge on this financial feast, buckle up for a detailed comparison of Chime, Current, and Varo.

Neobanks Pros and Cons

So, let’s cut to the chase – what can Chime, Current, and Varo offer us?

• Chime

– Free access to over 60,000 ATMs (so long, ATM fees!)
– SpotMe® overdraft protection up to $200 (Financial boo-boo? They’ve got you covered.)
– No-fee cash deposits at Walgreens (No wallet pinch while depositing cash. Classy, Chime.)
– Mobile check deposit does require direct deposit (Hey, you can’t have it all, right?)

• Current

– Overdraft protection up to $200 (Another financial safety net – sweet!)
– Points & cash back for select debit card purchases (Money, meet back pocket.)
– Free withdrawals at 40,000+ ATMs (Chaching!)
– $3.50 cash deposit can feel like a spoonful of reality (Uh-oh!)

• Varo

– Free ATM access at 40,000+ locations (Bye to those pesky ATM fees!)
– Holds a national bank charter (Smithsonian, here they come!)
– Zero overdraft fees (Another safety net – seems like they’ve got your back.)
– Requirements apply for the highest interest rates (Higher the climb, the sweeter the view?)

Chime, Current, Varo: The Nitty-Gritty

You might have caught Chime’s glitzy cameo in a Riverdale episode or perhaps the Jonas Brothers rockin’ in a music video. Or more likely, you’ve heard of Chime in 2020 when their users got a head start with their coronavirus stimulus payments. Now does Chime ring a bell (pun absolutely intended)?

With Chime, it’s all about reaching the M A S S E S. According to Aaron Plante, VP of lending products and banking strategy, Chime stands for – no monthly fees, no minimum balance requirements, and a fee-free overdraft ledger up to $200 on debit card purchases – especially aiding Americans living paycheck to paycheck. “Our typical member is someone working a 9-to-5, paid biweekly, and likely a bit younger than customers banking in those musty traditional bank lobbies,” he explains.

But, Chime isn’t all sunshine and roses. A 2021 ProPublica report highlighted some customer complaints and account closures (I know, gasp!). And remember, Chime isn’t a bank (plot twist!) but a financial tech company. In fact, a court ruling prohibits Chime from calling itself a “bank.”

So, who’s really handling your money? Well, Chime’s banking services come via The Bancorp Bank and Stride Bank, and Visa cuts the paycheck as Chime’s debit card issuer. How does Chime keep the lights on? A sizable chunk comes from the interchange fees merchants cough up each time you use your card.

The ever-optimistic Plante, however, insists that Chime’s prime directive is to serve, not exploit its user base, offering government stimulus as soon as they receive file notifications instead of waiting for the clearance.

“The traditional banks could pull off all this jazz just like Chime, or even more easily,” Plante chuckles. “But they seem to prefer lounging until everything is cleared.”

Current’s moniker might ring a bell for New Yorkers – thanks to its ads sprinkled around the city’s subway system, with catchy phrases like “Did anyone miss bank branches during quarantine? We rest our case,” and goofy quips such as, “Banks are cheugy.”

While overall “cheugy” might not be everyone’s choice of words, CTO Trevor Marshall says it’s no mistake. After all, traditional banks aim to attract deposits supporting their business. Current, however, is playing a different ballgame. Their paycheck isn’t debt driven but rather comes from merchant interchange fees – they rake in profits when money’s on the move, not sitting and gathering dust in some vault.

Current shook hands with Choice Financial Group and Cross River Bank and delegated Visa to supply their debit cards. Their trump card is no-limit free overdrafts, fast gas hold removals, early direct deposit, cash back rewards, and teen banking.

Marshall is happy to underline Current’s focus on servicing the likes of gig-employees or those facing unemployment – groups generally underserved by mainstream banks.

“Our services aren’t for the ultra-wealthy—nor are they likely ever to be,” Marshall says with confidence.

Moving onto Varo, browsing their website greets you with slogans like “no hidden fees” and “early payday.” While these perks cause some cheer, what truly gives Varo an edge is its status as a nationally chartered bank since 2020. That’s right – Varo isn’t just a neobank, they’re a full-on licensed, regulated bank.

According to Varo’s CEO and co-founder Colin Walsh, they’re striving to be a one-stop money management solution for regular guys and gals like delivery drivers, housekeepers, and gardeners. They also offer federal regulation and are directly insured by FDIC.

It’s important to take note here that Varo can honestly and truly call themselves a bank, unlike Chime. Being a registered bank offers trust and assurance to its customers that their funds are secure – and who doesn’t want that?

Varo is a jack-of-all-trades in the way it earns income, although interchange fees still play a major role. They boast a competitive high-yield savings account with 5% APY on deposits up to $5,000, along with the Varo Believe Express Secured Credit Card to enable building creditworthiness.

Walsh firmly believes that appreciating how societal trends are shifting, such as younger generations favoring digital economic tools over traditional bank branches, is key in understanding Varo’s appeal.

“With ongoing social transformation and the impacts of structural and economic inequality, this is the perfect time for innovative solutions,” Walsh says. “And people are embracing them.”

Neobanks vs. The Old Guard: How They Stack Up

While they both do banking, traditional banks and neobanks have unique ways they go about it and often end up serving slightly different clienteles. But how do they compare?

• Services

  Those old brick and mortar banks usually offer checking and savings accounts, credit cards, loans, and moneymaking goodies like CDs. Meanwhile, neobanks focus on the online version of the checking and saving accounts and access to oodles of ATMs. Both types provide user-friendly apps for the tech-savvy among us and ways to deposit cash, though there may be fees attached in some cases.

• Offices

  Traditional banks have physical branches spreading like spiders’ webs across cities and towns. For neobanks, their operations occur entirely in cyberspace, like some kind of digital wizards! When you need help, each neobank has specific channels:

  • Chime: Get in-chat assistance via the app, or a 24/7 hotline: (844) 244-6363.
  • Varo: A chat support feature available 24/7 via the app, or give them a ring at (877) 377-VARO (between 8 a.m. and 4:30 p.m. MT, weekdays).
  • Current: With no phone lines, your rescue options are in-app chat or email at support@current.com (available 24/7).

• Requirements & Regulations

  Banks need a formal license and regulatory babysitting from the Federal Reserve and OCC, while neobanks get to skip this bit because of less stringent oversight.

• The FDIC guarantees deposits up to $250k per bank/deposit category/depositor at your regular banks, while the neobank FDIC insurance coverage depends on partnering banks – Varo is the exception as a registered bank.

Before You Sign Up: Things To Consider

As with all major life decisions (investing in that avocado toast maker, for example), there are a few things to ponder before throwing your lot in with a neobank:

• Branch access: If face-to-face banking is your jam, you might want to give neobanks a pass.
• Service scope: If you have a simple portfolio (think checking account, savings account, and a credit card), a neobank may be just the ticket. But if you have a complicated portfolio with several different investments, a traditional bank might be more your speed.
• Rates: (Sit up straight for this one.) Neobanks typically offer higher savings rates than brick-and-mortar banks. Yes, you read that right!
• Customer support: If you have a need for immediate, face-to-face customer service, a traditional bank will come to your aid. On the other hand, if you’re cool with chatting through an app or hitting speed dial, a neobank should suit you just fine.

Neobank FAQs

What do Varo and Chime have in common?

There’s a buffet of similarities between the two: FDIC insurance, user rave-reviews on app stores, no monthly fees with their checking and savings accounts, and debuting as dapper debit cards.

How do I open a Varo account?

It’s easy peasy: have a valid government-issued ID, your Social Security number, basic personal information, a good selfie (it’s important!), and an optional opening deposit (could be empty-handed!).

How about opening a Chime account?

Almost the same song and dance as Varo, you need: a government-issued ID, Social Security number, proof of address, and an optional initial deposit. Coins or no coins – it’s your call!

And to open a Current account?

Same as before, except they practically demand you have a smartphone capable of receiving SMS, a US address and, again, you can be as generous or frugal as you wish with your first deposit.

So, what’s the catch?

Now, brace yourself for this. While Chime, Current, and Varo might come across as the modern Robin Hoods of banking, they aren’t running on fairy dust. Their business models are about keeping costs low—much like other online banks, they cut out physical branches and all the associated expenses. However, according to the wise Di Maggio from Harvard, attracting customers can be quite the pretty penny, especially when catering to the everyday kinds of folks who aren’t always mega profitable.

“The real question is whether this business model has a sell-by date, or whether neobanks will eventually need to unveil new, perhaps fee-based products to stay alive,” he mulls.

So, either neobanks start diversifying into additional financial products, or they bring back a few fees. And then, it’ll be up to us, the customers, to decide if it’s still worth sticking around. But the big bet here is that because online banks are so streamlined, you won’t want to walk away.

But don’t forget – it’s survival of the fittest in the neobank jungle, and not all of them are going to come out on top. In the meantime, it’s our job as consumers to keep our eyes peeled.

“They’re laying out a tantalizing spread of enticing features,” Di Maggio advises. “But once they’ve hit their stride, the next crucial steps are figuring out how to make their customer base profitable.”

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Related Topics:

– Neobanks vs Traditional Banks

– Best Online Checking Accounts

– High-Yield Savings Accounts

– Opening a Digital Bank Account

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*Considering dipping your toes in the neobank world? Compare Chime, Current, and Varo features to pick the best one that fits solidly in your corner.*