A Silicon Valley fintech startup called Varo Moneybegan to offer state insured customer deposits. Financial Times describes it as a “watershed moment” in the competition between financial startups with traditional banks.

According to Frank Media, VaroMoney has become the first fintech company in the USto start accepting federally insured customer deposits through Varo Bank. Bank deposits in USA are insured by the Federal Deposit Insurance Corporation (FDIC).

“Varo Money has worked three years for this, spending over $100 billion. It’s really the only long-term sustainable route if you want to be around 50 to 100 years from now,”said Colin Walsh, chief executive of Varo.

Other fintech companies are following Varo’s lead. Recently, the Office of the Comptroller of the Currency (OCC)has granted conditional approval for another fintech-startup Social Finance, Inc., to establish a full-service national bank calledSoFi Bank. It will have to apply for Federal Reserve membership and obtain deposit insurance from the Federal Deposit Insurance Corporation.

In March, financial-tech company Square Inc. was granted conditional approval to open its own bank in Utah in 2021.As CNBC previously reported, the British fintech-startup Revoult had similar plans in USA.

Several states dispute OCC's right to grant such approvals: the New York Department of Financial Services has already filed a law suitagainstOCC.

Being included in the deposit insurance system will allow fintech startups to compete on an equal footing with traditional banks on the US retail deposit market, the volume of which amounts to almost $16 trillion. Fintech startups are now using other ways to enter the market. For example, Chime has partnered with FDIC-insured banks such as Stride Bank.

Besides administrative obstacles in entering the deposit market, fintech executives point to another issue: hard lobbying by established banks.“We see it as anti-competition,” said Lee Carter, chief executive of the US banking arm of Japanese ecommerce company Rakuten, which is seeking a banking license and has faced opposition from banking industry groups.

“The example of Varo Money is illustrative, and the regulators of other countries can follow it. Competition between traditional banks and fintech startups is growing,”the newspaper writes.

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