Though investors may be willing to crack open their wallets to explore the potential of new technologies like artificial intelligence, funding may not be flowing as freely as it once did for certain industries. The fintech space, for example, is grappling with what management consultant McKinsey & Co. calls a “new era,” where many are shifting their focus to a model that prizes sustainable — and most critically, profitable — growth in the face of ongoing economic headwinds.
Ensuring that online-only bank Varo Bank is well-positioned for future profitability is a key focus for newly minted CFO Allen Parker, but it’s important for leadership to identity any potential gaps or roadblocks that may materialize.
“I do believe that those companies that are disrupting and moving to hyper growth and scale need to have two elements that management is constantly thinking about,” Parker said in an interview.
“The first one is, are you looking far enough down the road to know what success will look like? And do you understand your gaps, or the things that need to be built to support that success?” Parker said. “And then secondly, and just as important, do you have a set of tactical metrics and leading indicators, input metrics I call them, to ensure you're executing today at the pace and speed that you need to?”
Finance as the decision-maker
Parker will be drawing on lessons learned from his experience at past larger-scale companies to guide Varo toward its goal of profitability. Prior to Varo, Parker served as CFO for online housing platform Zillow, but his career has spanned various financial and executive roles at companies including Amazon, American Standard and General Electric since he started as a public accountant at Coopers & Lybrand — before its merger with the accounting firm that would become PricewaterhouseCoopers.
When it comes to approaching the CFO role for the digital-first bank, it goes back to “what the leaders need to do in highly complex, quickly scaling companies to support disruption,” Parker said. “And the way I think about it is, finance plays a key role in helping business leaders make good decisions.”
Varo will be focusing on investments to continue improving its customer acquisition and in new technologies like machine learning for more efficient processes and products. It’s also important to assess the talent on hand as well as the technology; while there are no large skill gaps in the bank’s current finance team, Parker will continue to assess what skills might be needed in the face of future change.
“I’d say my learning curve is fairly high right now, as I absorb what mechanisms we currently support in the business, where there are efficiencies, where there are challenges, where there are gaps,” he said. “I will say that I was impressed with the team. And I feel like we are fairly efficient in our processes, but there are opportunities for us to improve.”
Creating the path to profitability
Varo is “hyper focused” on reaching its profitability goal, Parker said. However, doing so has thus far represented an uphill climb for the bank, which started as fintech “Varo Money” before becoming the first “neobank” to receive a national bank charter from the Office of the Comptroller of the Currency in 2020. That marks it distinctly as a bank, rather than a fintech, albeit one that was built intentionally to be a digital entity, which is “different than some of the traditionals that are operating on a 40-year-old technology stack,” he said.
While the digital banking model has seen some popularity, notably overseas, many have struggled to get in the black. The U.K.’s Monzo achieved monthly profitability for the first time last year, while also continuing to report substantial losses, according to CNBC. Varo fended off a significant cash crunch in 2022 and conducted staff layoffs as it looked to curb its burn rate.
These effects have already yielded positive results, with Varo reducing its losses year over year by 56%, Parker said. He declined to disclose any particular actions Varo is taking in regards to its cash position but said the bank will continue to assess capital markets. “We'll continue to look at our performance, our path to profitability, and we'll continue to assess whether or not there are opportunities to accelerate that, if needed,” he said.
Varo reported approximately $107.7 million in equity capital for the quarter that ended Dec. 31, with a loss of $105.2 million, according to its most recent call report. Parker declined to provide a timeline for reaching profitability, but CEO Colin Walsh has said Varo may get there by the end of the year.
The bank remains optimistic about its ability to achieve that goal, especially as a clear winner in the U.S. neobank space has yet to emerge.
“But if I think about the growth and maturity of Gen Z, the millennials who have grown up using digital and mobile first, I believe we are well-positioned to serve this customer set with a cost structure that allows us to serve them in a profitable way,” Parker said.
