Apple has Goldman Sachs. Google now has Citigroup. Uber, Venmo, and Square all have lesser-known or undisclosed banks propping up their consumer-finance forays.
Yes, in these days of Apple Card and Facebook Pay and, soon, Google checking, every tech company seems to want to become a bank. The appeal is obvious: Handling their customers’ personal finances gives Big Tech new streams of revenue, of course, but also an opportunity to embed themselves more deeply into the financial behavior—and sensitive personal data—of their customers.
Google has become the latest such tech giant to take the financial plunge, planning to launch checking accounts with Citigroup and a Stanford University credit union, the Wall Street Journal reported last week. The news follows a tumultuous banking week for Apple and partner Goldman Sachs, which became the sources of Twitter outrage and eventually a New York State regulatory investigation into whether the application process for the much-hyped Apple Card is sexist.
Yet this flurry of banking activity is also the latest example of an ongoing evolution in how big tech companies and their financial counterparts compete and, increasingly, cooperate. Tech companies have spent much of the past decade trying to break into financial services—but these days, they’ve all but given up on going it alone.
“If I had $1000 for every announcement that’s happened in the last five years, since I’ve been here—I mean, wow,” PayPal CEO Dan Schulman said of the Google checking news, in an interview with Fortune editors and reporters last week. “It’s a tough, tough business.”
Which Schulman knows something about: While PayPal provides loans and other non-payments services, the payments company isn’t technically a bank, either. Instead, it’s working with partners such as Synchrony Financial, which will help launch its forthcoming Venmo credit card.
After years of tech companies promising that their nimbler, more innovative approach could disrupt staid old financial incumbents, most have currently given up on becoming banks themselves—and taking on all the attendant headaches. The reasons are multifold, but boil down to regulation, lobbying, and red tape.
Plenty of opposition
One of the biggest banks that never existed was Walmart, which spent most of a decade trying to get a banking charter—to fierce financial industry opposition. The retailer finally gave up the fight in 2007, right before the onset of the financial crisis and the ensuing regulatory clampdown on all sorts of financial activities.
For the next few years, as startups and rapidly-expanding tech companies turned “fintech” into a recognized sector, financial regulators started looking for ways to open up the industry to some these newcomers. The Office of the Comptroller of the Currency has spent the past three years trying to expedite the process, by developing a special bank charter for fintech companies. But state regulators opposed the new charter, and last month a federal court effectively blocked it, ruling that the OCC didn’t have the authority to issue such charters.
“The idea that came to be popular a few years back, bank charters for fintech and tech firms, has really stalled out,” says Jo Ann Barefoot, a former deputy U.S. Comptroller of the Currency and founder of the nonprofit Alliance for Innovative Regulation. “Between difficulties that the OCC has had in launching its fintech charter and the controversy around tech companies today, with the so-called Techlash, trying to get a specific bank charter is politically complex.”
Some tech companies are still trying. Square, which sure looks like a full-fledged financial services company but still can’t lend to its customers without a bank partner, has been seeking a different kind of bank license since 2017. Japanese ecommerce company Rakuten has also applied for one to the Federal Deposit Insurance Corp.—to stiff opposition from banks and their trade groups.
And as Barefoot points out, even without that entrenched financial industry opposition, Big Tech has been having a pretty terrible year reputation-wise. (See Facebook, at the center of the Techlash, losing several big partners from its Libra cryptocurrency project.) So these companies don’t exactly have the greatest of footing from which to convince regulators that they’re ready to take on greater financial responsibility.
Fortunately for their ambitions, it’s easier than ever to pretend to be a bank, at least from a marketing and customer standpoint. Banks from Goldman Sachs on down are increasingly willing to partner with their higher-tech potential competitors—even if these relationships can still have some tensions, as Fortune pointed out in a recent profile of Goldman CEO David Solomon.
Even some fintech startups that call themselves banks, like “mobile banking app” Chime, rely on outside partners to do most of the regulated banking stuff; some of Chime’s banking services are provided by the institution with the magnificently redundant name of The Bancorp Bank.
Given these increasing workarounds, it seems possible for tech companies to continue achieving their goals—and changing the financial system—even if they never fully win the regulatory battle to become banks. “We’re in a period of massive experimentation, and that doesn’t come easily to the financial sector,” Barefoot says. “The future of the financial system is going to be a mix of banks and non-banks … and the winners are going to be the ones that are rapidly moving to transform themselves.”
More must-read stories from Fortune:
—The S&P 500 may be due for a 25% correction, according to historical data
—The 2020 tax brackets are out. What is your rate?
—How “VSCO Girls” are killing makeup sales
—What is “quantitative easing”—and why is everyone so worked up about it?
—A.I. vs. the wolves of Wall Street
Don’t miss the daily Term Sheet, Fortune’s newsletter on deals and dealmakers.
