Elon Musk advances his vision for Twitter payments

As Elon Musk looks for new revenue streams to turn around the company, Twitter has started to seek for regulatory licenses throughout the US and create the software necessary to implement payments across the social media network.

According to two people familiar with the company’s plans, Esther Crawford, a rapidly ascending lieutenant of Musk at Twitter, has begun to outline the architecture required to enable payments on the site with a small team.

A key component of Musk’s strategy to create new revenue sources is the initiative to start accepting payments through the website. Since he paid $44 billion for the network in October, Twitter’s $5 billion a year in advertising revenue has plummeted, with marketers blaming management and content moderation issues.

As part of a larger strategy to introduce a “everything app” that combines messaging, payments, and commerce, Musk has stated that he wants Twitter to offer fintech services like peer-to-peer transactions, savings accounts, and debit cards. Musk co-founded one of the earliest online banks, X.com, in 1999. X.com ultimately merged with the PayPal payments behemoth.

Project X

Musk admitted in August of last year that he had “a greater vision for what I felt X.com or X Corporation could have been back in the day,” albeit it was unclear what that grander vision was.

During Tesla’s annual shareholder meeting, he said:

It’s a pretty grand vision. And obviously that could be started from scratch. But I think Twitter would help accelerate that by three to five years.

He did not, however, give other details at that time.

At the height of the initial dotcom bubble in early 1999, Musk co-founded one of the first online banks, the original X.com. Zip2, a website that lists local businesses, was Musk’s first venture and had recently been sold to Compaq for more than $300 million.

Musk, a freshly minted multimillionaire, put $12 million, or the majority of his after-tax Zip2 sale earnings, into X.com. In the long run, he saw it developing into a one-stop shop for financial services, including brokerage and insurance services as well as consumer bank accounts.

A year later, X.com and its rival Confinity combined, and in 2001, the business adopted the name PayPal. Musk made roughly $180 million when it was sold to eBay in 2002 for $1.5 billion, enabling him the resources to invest in the electric vehicle startup Tesla and establish his rocket firm, SpaceX.

Musk, though, has stated in the past that he believes X.com was a squandered opportunity to become “the core hub where all transactions happen.” He admitted to have even considering “trying to get PayPal back” to his biographer Ashlee Vance.

In Vance’s 2015 biography, Musk is cited as saying,

If all your financial activities are flawlessly integrated [in] one spot, it’s incredibly straightforward to execute transactions and the fees associated with transactions are cheap. Why [PayPal] aren’t they doing this? It’s crazy.

In recent times, PayPal has taken more aggressive steps to develop into a “super-app” for payments. But Musk’s plan to combine X.com and Twitter seems to go even further.

In a pitch deck presented to investors earlier this year, Musk outlined his vision for Twitter, which included adding the ability for users to make payments to one another in the manner of PayPal and reducing advertising in favor of charging some users a membership fee. By 2028, he anticipated that more than 100 million customers would subscribe to X.

Moving Forward

According to two people with knowledge of the team’s work, Crawford’s team at Twitter is making progress, including creating a vault for securing and storing the user data that would be gathered by the system.

Additionally, Twitter is moving ahead with the legal verifications required before announcing a payment service. According to a regulatory filing, Twitter registered as a payments processor with the US Treasury in November. According to these sources, it had also started to apply for some of the state licenses it would require to start operating.

One of the people stated that the remaining paperwork would be filed soon in the hopes that US licensing would be finished within a year. After that, they continued, the business would look to grow by obtaining regulatory permissions abroad.

Prior to Musk taking over the business, Twitter had established a subsidiary called Twitter Payments LLC in August of last year. Musk just named Crawford, Twitter’s director of product management, as Twitter Payments’ CEO.

But in order to realize Musk’s vision, we must confront fresh technological obstacles, heavy regulatory costs, and eroded public confidence.

In an effort to acquire more money late last year, Musk reportedly approached Twitter’s equity investors. According to one investor who received the offer, Musk stated that some of the funds would be used to finance a “hiring binge” of programmers to create a “super app” that could handle payments.

Twitter had been looking on various payment capabilities related to tipping creators and e-commerce before Musk took over.

According to three people familiar with the plans, Musk’s ambition goes far beyond that and includes looking into more avenues for users to directly pay other users, reward artists directly through the network, and purchase goods directly.

From Fiat to Crypto?

According to two people, Musk has stated that he wants the system to remain fiat first and foremost with the possibility of adding cryptocurrency capability down the road.

Musk stated his goal for Twitter was to generate around $1.3 billion in payments revenues by 2028 in an early pitch deck to investors in the acquisition deal in May, which was obtained by the Financial Times. The New York Times broke the story of the pitch deck first.

Hundreds of thousands of Twitter users provide links to third-party payment choices either in their tweets or on their accounts, according to data from payments markets data organization FXC Intelligence. It’s kind of a no-brainer because Twitter is already a platform for payments, according to Lucy Ingham, head of content at FXC Intelligence.

Other payment specialists have questioned Twitter’s ability to grow to a competitive level, particularly in the US where companies like Venmo, Cash App, and Zelle are fierce competitors.

Additionally, Twitter will be subject to intense regulatory inspection. Musk’s decision to fire more than half of the platform’s workforce has led to concerns that the platform’s compliance staffing is insufficient, which has led to the move into payments.

Businesses that handle money transfers, currency exchanges, or check cashing must notify authorities of any odd behavior.

According to Lisa Ellis, senior equity analyst at research firm MoffettNathanson and payments specialist, user accounts must be directly linked to a user’s identification in order to monitor for fraud and suspicious transactions.

Because of that, she says, “many [tech companies] experiment and then give up” as a result of these limitations.

They feel it to be a hardship to eventually shoulder the long-term investment and risk — where you may get penalized if there is an issue and you have to have an entire compliance infrastructure that has to be licensed regularly.

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