An Apple bank is a fun idea, but it’s almost certainly not happening

Charlie Stross wrote a blog post arguing that Apple’s interest in strong encryption is linked to its interest in secure payments, which in turn is linked to its long-term plan to leverage the company’s enormous stockpile of cash into becoming a bank and disrupting the entire consumer banking industry.

It’s a fun idea to think about. And when you start thinking about it, you quickly realize that not only do Apple’s consumer relationships suggest a possible banking opportunity but so do Amazon’s and Google’s and Facebook’s. Yet there’s a pretty good reason none of these companies have taken this step yet: It’s generally illegal for non-bank companies like Apple to go into the banking business.

Theoretically, Apple could try to convince regulators to let it get involved in some bank-like activities. But if it wanted to do that, it would be bending over backward to show it was willing to cooperate with regulators on other issues. Instead, Apple has done just the opposite, staging a high-profile fight with the FBI over iPhone privacy. That’s not the behavior of a company that’s preparing to get into a new, highly regulated industry.

We talk a fair amount in US politics about an old law called Glass-Steagall, its repeal in 1999, and proposals to reinstate some version of it. What that law said was that a bank (in the sense of the kind of place where you might have a bank account or go to get a mortgage) couldn’t be part of the same company as other kinds of financial services companies, like investment banks or insurance companies.

But it’s important to understand that the commercial bank/investment bank combination wasn’t something that was uniquely banned during the New Deal; it’s something that was uniquely legalized during the financial deregulation of the 1980s and ‘90s.

Which is to say that even though a bank can be part of the same company as an investment bank or an insurance company or a stock brokerage firm, a bank can’t sell pizza or cars or also do HVAC repair. To be a company that owns banks you need to be a bank holding company, and then you can’t be owning businesses that aren’t financial services companies.

The line here can get a little bit fuzzy at times since non-bank companies that sell durable goods sometimes run financing subsidiaries that make loans, which seems pretty bank-like. But regulators do try to police the lines. One example is that General Motors’ financing arm, GMAC, used to be a big moneymaker for the company. But it was only after GMAC was spun out as a separate company called Ally Bank in the wake of the 2008 financial crisis that it started taking deposits. GMAC was owned by a car company, so it couldn’t do banking. Ally Bank isn’t, so it could.

Just because an Apple Bank would normally be illegal (and not just because that’s already the name of a bank) doesn’t mean it couldn’t happen. Walmart fought and failed to get a banking license, but then eight years later succeeded in securing permission to do some banking-like stuff. Apple is a big company, and it could hire lawyers and lobbyists to try to get favorable regulatory rulings and new legislation passed.

But here’s where Stross’s theory of the linkage between banking aspirations and taking on the FBI really goes south.

If you need big regulatory favors from the US government, the last thing you want to do is go and make a huge public stink about your disinclination to cooperate with the government on matters the FBI regards as urgent national security questions.

Most likely, Apple’s willingness to take a strong stand on behalf of its users’ privacy against government requests for help indicates the opposite: Apple is not planning on making any kind of big new regulatory asks in the foreseeable future. Apple Pay works by partnering with stakeholders in the existing bank and credit card industries. That’s partly to secure widespread acceptance, but it also helps to avoid regulatory issues. The company’s willingness to take a hard line against the Feds suggests that Apple has no plans to change this partnership-based strategy.