What lies ahead for Twitter (X) when it enters the market with its integrated payments feature

A month after Elon Musk acquired Twitter (now X) in October last year, the company filed paperwork with the Treasury Department's Financial Crimes Enforcement Network (FinCEN) to bring payment processing to the platform. 

Musk sketched out his plans for Twitter (X) during a live broadcast at the time. While bringing up enabling monetization for creators, he illustrated the idea of future Twitter as a platform where people could shop for goods, process payments, and complete transactions with connected debit cards and bank accounts as part of his vision for an Everything app.

Since then, Musk and his team have been applying for payments licenses in US states and designing the software required to introduce payments across the social media platform. Fast forward to July this year, it was reported that Twitter (X) secured money-transmitting licenses in three states, Michigan, Missouri, and New Hampshire.

Source: FXC Intelligence

While Twitter (X) is a way off from offering core banking products, integrating payments into its offering can open up the ability to diversify its sources of revenue beyond advertising – which could potentially make the company less reliant on ad revenue and create a more viable business model.

Trust is the name of the game

Twitter (X) has a different demographic and business model compared to fintech companies. In Twitter's case, it has a closed-loop system or marketplace, which means the user tweeting already has the audience/market segment she's tweeting to on Twitter. Integrating payment processing into Twitter's platform can lead to increased user engagement as users might find it more convenient to make purchases or conduct financial transactions directly with one another within the app, increasing conversion. 

However, acquiring new users can be a tall order for Twitter (X) given that established payment processors like PayPal and Stripe, among others, have already strengthened their customer base and market share. But since Twitter pursues an ecosystem strategy, its outcome may largely depend on how well it's able to win over its existing user base of 396.5 million users to get them to start using Twitter’s fintech offerings, according to PJ Gupta, CEO of Checkbook.

“It will be interesting to see if Twitter (X) can monetize its payment services businesses,” he said.

That said, handling financial transactions and sensitive payment information comes with significant responsibilities regarding data, privacy, and security. And trust is a critical feature in financial relationships. Consumers are increasingly concerned about how their personal data is collected in mobile apps. 85% of consumers said they deleted a phone app, 82% opted out of sharing personal data, 78% avoided a particular website, and 67% decided against making an online purchase due to privacy concerns, according to a new survey. Some users might feel uncomfortable sharing their financial information on a platform primarily known for social networking, which could be an uphill battle for Twitter (X) going forward.

Should FIs keep an eye out?

While Twitter’s venture into financial services and competing with incumbents may not be straight sailing, there also exists a different plausible possibility.

Apple represents a potential threat to banks and deep-seated payments firms – like PayPal – through securing deposits and scaling quickly in the BNPL market with its Pay Later feature. If Twitter (X) follows the same pattern, it may stand a chance to take a bite out of incumbent payments firms. Correspondingly, Twitter’s brand recognition, network effects, and technological advancements – much like Apple – can work in its favor to gain market share rapidly.

Compliance and regulation: Not a walk in the park

Although the evolving environment of financial services creates opportunities, stepping into it will subject the would-be payments platform to a host of regulations and compliance requirements, which can vary significantly across countries. Twitter’s approval to serve as a money transmitter in a few states sets the stage for pursuing its long-term aspiration of going deeper into payments and other financial services, but it’s easier said than done. 

In the past, tech companies have gone down the road of expanding into core banking products and checked all the boxes according to their initial requirements – but eventually failed or scaled back on their game plans facing tough competition, lengthy approval procedures, and regulatory pressures fencing in the financial industry. 

In 2019, Meta (then Facebook) revealed details of its passion project Libra (renamed to Diem): a global digital currency that would have allowed users to make payments across the entire Meta ecosystem including Instagram and WhatsApp, as well as the internet at large. However, due to multiple mishaps and increasing regulatory scrutiny, the project didn’t see the light of day.

Besides, integrating P2P transactions in social media platforms hasn’t been overly successful before. Facebook introduced peer-to-peer payments in Messenger in 2015, which allowed users to send and receive money from their friends using their debit cards. However, the service was discontinued within a few years after being outpaced by other accepted P2P services such as Venmo and Zelle.

Although consumers are increasingly using mobile payment apps as de facto bank accounts with 84% of consumers saying they have used a P2P service, there still exist concerns about fraud, regulatory scrutiny, and the risk of not being FDIC-insured. 

It is still early to predict whether Twitter (X) can remake itself into the American version of WeChat. Factors like evolving consumer preferences, competitive payments landscape, regulatory concerns, technical challenges, and use cases will eventually bring more clarity to its trajectory going forward.