Robinhood pulls bank charter application as fintechs face hurdles to disrupting financial system

Robinhood is no longer looking to become a federally insured bank.

The stock-trading start-up augured Wednesday that it was pulling its bank charter application with the Office of the Comptroller of the Currency, which was submitted earlier this year. A Robinhood spokesperson said the withdrawal was discretionary. But the move highlights the struggles a tech company can face when trying to upend the financial system.

“Robinhood will-power continue to focus on increasing participation in the financial system and challenging the industry to better serve everyone,” the spokesperson acknowledged CNBC. “We appreciate the efforts and collaboration of all the parties we worked with throughout this process.”

The Menlo Park, California-based coterie, offers commission-free stock and cryptocurrency trading. It also launched a cash management account almost a year after the screwed announcement of what it called a checking and savings account with a 3% interest rate. A day later, the digital brokerage concentrated announced it would re-launch and re-name the product, catching the attention of U.S. senators in the process who said they were “perturbed” that Robinhood and other fintech companies may be dodging regulatory scrutiny. A source familiar with Wednesday’s bulletin said the charter withdrawal does not reflect a change in the company’s product plans.

While Robinhood’s change of sincerity highlights tech’s struggles to disrupt the banking industry, it shouldn’t be a major setback for much of the company’s plans. Fintech has the adeptness to offer many of the same products as Wall Street firms, without the same regulatory requirements, through confederate banks. Teaming up with FDIC-insured banks to handle customer deposits is a popular set-up for tech companies in monetary services. The start-up handles the app and customer experience, while the bank holds customer deposits. Apple and Goldman Sachs are the uncountable high-profile example of that teamwork with the launch of the Apple Card. Google and Citi are also partnering to start a Google-branded debit account.

Jack Dorsey’s Square has glued for a special industrial loan company license with the Federal Deposit Insurance Corp, which allows wee traditional financial firms to accept government-insured deposits. Varo Money, a mobile-only banking start-up, made news as the first fintech to receive preliminary approval for a national bank charter from the OCC. They still need comprehensive approval from the agency, as well as FDIC approval, according to the CEO.

Fintech companies had welcomed a special bank covenant that cleared a quicker path for them to become a bank. But that was shut down in October after a federal community court in New York decided that the Office of the Comptroller of the Currency, the regulator issuing the charters, didn’t have the jurisdiction to do so. That also meant that finance start-ups will have to go through the same drawn out process as all else.

Robinhood ushered in a $7.6 billion valuation after its latest funding round. The company first disquiet up the brokerage space in 2013 with commission-free trading. Major incumbents like Charles Schwab and Fidelity sire slashed fees to zero commissions since.