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It’s one thing to envision building a financial ecosystem: A digital front door where users lock into a continuum of banking, payments, app-driven activities that flow naturally across hardware, software and social media too.
It’s another to put it in place.
As reported here, Elon Musk is mulling the ways and means to, as he said, “become the biggest financial institution in the world.”
Generally speaking, all platforms want to diversify revenue streams – Twitter’s no exception, as it wants to lessen its dependence on advertising-based revenues, which account for roughly 90% of the top line, and where those revenues have been declining by double-digit percentage points. Platforms have the advantage of being able to add a range of services quickly or to bring new partners on board quickly to offer those services. And there’s the critical mass that comes with having, as Twitter reportedly does, around 375 million daily active users.
The company is, as has been widely reported, applying for regulatory licenses here in the states to get payments processing in place. Payments are the building blocks of adding new financial services and crafting a digital home where users can create and maintain accounts, transact, and, perhaps, do business directly with merchants on the platform.
The PayPal blueprint is in place here.
A State-by-State Approach
But there’s really not a quick and easy path toward even getting the payments piece of the puzzle in place. Twitter will have to go state by state, registering for a license.
“I’m going to execute the X.com game plan from 22 years ago with some improvements,” Musk said several months ago, as reported by The Wall Street Journal, with a nod to the online bank that he’d co-founded at the very end of the 20th century. “There’s a product plan I wrote … in July 2000 where I thought it would be possible to make the most valuable financial institution in the world, and we’re going to execute that plan…which amazingly no one has done.”
The two decades+ since then have seen other tech juggernauts become firmly entrenched, creating platforms and ecosystems that are fully-formed networks — bring merchants, payments and consumers together, interacting with one another as they send money across a variety of use cases and borders (beyond PayPal, there is Block, too, formerly known as Square).
The challenges? Well, they’re evident in Apple’s push into financial services. As PYMNTS has detailed in past research, three-quarters of U.S. retailers accept Apple Pay and nearly half of all U.S. consumers have iPhones. So the mechanics are there to get payments firmly entrenched into Apple’s ecosystem, but we’ve also found that the company garners only 2.4% of on-premise commerce.
Apple also captures 6% of “eligible” transactions when a consumer walks into a store and it’s possible to use Apple Pay. More recently, we’ve seen the launch of Apple Pay Later, and perhaps that will prove a boon for adoption.
Beyond payments, the digital banking model has its own challenges — which means they become Twitter’s challenges, too, if Musk proceeds along his stated path.
PYMNTS has found that 39% of consumers say digital banks can be true alternatives to traditional banks, more than half have no plans to switch to a digital bank. Fewer than 10% of consumers use FinTechs as their primary banks. More than a third of consumers don’t trust the reliability of digital banks; 37% say they want the ability to access a physical branch.
The banks, of course, are hardly standing still. Some of the biggest players in the industry are working together to bring a digital wallet into the field — by the second half of this year — to rival Apple and PayPal. By extension, that digital wallet would already be jousting for consumers’/merchants’ minds and wallet share even before Twitter takes baby steps.
Elon Musk is nothing if not ambitious — but Twitter’s path toward financial services powerhouse may be a long and winding road.
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