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In 1999, a then-unknown Elon Musk purchased the web domain x.com and set about building his vision for an internet-only bank.
Challenges that could end Elon’s X factor dream
While said bank didn’t materialise, the site eventually morphed into PayPal – a venture that netted Musk his first fortune and is now used by more than 430 million people worldwide.
Fast-forward 25 years, and this serial entrepreneur has brought us Skype, SpaceX, Tesla cars and more.
While his drive is never in doubt, his new plan to turn Twitter into “X” – a Super App that, in Musk’s words, will “enable comprehensive communications and the ability to conduct your entire financial world” – could face serious headwinds.
What Elon wants … and why it’s a problem
Musk claims there’s a “transformative opportunity in payments”, and that, “in principle, payments and messaging are the same thing.”
Meanwhile, his chosen CEO for X, Linda Yaccarino, told CNN that, “X is the future state of unlimited interactivity for video, messaging … payments and banking”, envisaging the platform as, “a global marketplace for ideas, goods and services, powered by AI.”
Such statements make it pretty clear that Musk recognises the attraction – for consumers – in being able to combine payments with messaging.
He also sees the revenue opportunity in undercutting existing transaction fees. However, X faces at least three big hurdles.
The first is regulation. Over the next two years, four major pieces of payments-related legislation will be introduced in Europe alone: an update to e-ID regulation, eIDAS; the digital resilience rules known as DORA; new anti-money laws in AMLD6, and finally the third payment services directive, or PSD3.
Similar rafts of regulation sit before the US Congress, UK Parliament and others. Much of this aims to deliver more secure customer ID, identify ultimate beneficial ownership, and solve other pressing challenges.
Introducing a robust and workable ID solution is X’s second problem. While some suggest X might achieve compliance with ID regulations by using (for instance) biometric solutions on-device as provided by Apple, Google and others, concrete plans are yet to be announced.
What’s more – and this is X’s third problem – one wonders why users might want to transact value through X when they can do so securely and rapidly via emerging, bank-led solutions like A2A and R2P.
This is a little like digital wallet vs cards: although wallets work fine, in practice Visa say 7 in 10 users prefer cards over wallets as a form of payment.
This ain’t (yet) China, Elon
If the Musk/Yaccarino vision sounds a lot like WeChat, then that’s no coincidence.
In earlier interviews, Musk has praised the way that “in China, you basically live off WeChat.” Yet Musk’s understanding of how WeChat operates ignores the massive benefit WeChat enjoys from state-mandated digital ID on every device.
“China has state-mandated digital ID. Plus, a decade ago 4 in 10 Chinese were unbanked.”
In other words, the Chinese state knows exactly who is paying whom, when and why.
It’s unlikely Western civil liberties campaigners would wear that level of intrusion to secure transactions.
Furthermore, Musk’s vision for X also misses the fact that payment card penetration in China is around one-third of the Western level and that, less than a decade ago, 4 in 10 Chinese were unbanked.
WeChat’s popularity has partly been achieved by offering previously unavailable services to the mass market, with a huge proportion of 700 million Chinese adults now using one of the Super Apps to combine chat, payment and other financial services.
By contrast, there are just 200 million Twitter users around the world.
Taken as a whole, it seems Musk’s plans for X could see him meet his Waterloo – on the very same ground (payments) where he started his career a quarter of a century ago.
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