Varo is committed to underwriting and cross-selling success with small lending

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News: Varo will make several updates to its small dollar loan proposals, Varo Advancethat range from change of charged commissions To updated underwriting for borrowers. American neobank, which announced the changes in an email to customers, said they would take effect on October 1, 2021.

More about this: The current commission structure for borrowers is $ 3 for a $ 50 advance, $ 4 for a $ 75 advance, and $ 5 for a $ 100 advance.

Under new commission system:

  • Borrowers will no longer be limited to a $ 100 advance. They will pay $ 0.50 along with 4.7% of their principal, rounded to the nearest $ 0.50.
  • Advances of just $ 20 will remain exempt from payment of fees.

Varo Advance users who do not repay their loans still do not get hit on their credit and are simply prevented from taking on further loans. on the Bank dive.

Varo also announced that it will include the associated bank accounts of its borrowers in its loan underwriting process. This add-on will allow Varo to check external data such as direct deposit records and transaction histories.

These are significant changes for a product that was only announced in October 2020.

  • At the time, the company advertised Varo Advance as a way to help people in need of short-term liquidity assistance and as an alternative to overdraft in their accounts.
  • The product rollout came just months after leading U.S. banking regulators, including the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC), called on financial institutions make small dollar loans available to help borrowers amid the coronavirus pandemic.

Opportunity: The Varo Advance redesign provides Neobank with two key opportunities to support its lending operations:

  • The inclusion of linked accounts allows Varo to test a new way of collecting data to inform its underwriting. If the process works well for small loans, Varo could include it in a range of potential loan products such as credit cards, mortgage, or car loans
  • Removing the $ 100 advance loan limit gives Varo more flexibility in dealing with borrowers. This may include people who do not use neobank but need a forgiving short-term loan, and existing clients who may need to loan more than $ 100 to cover their short-term expenses.

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