When Elon Musk bought Twitter in October 2022, he rapidly implemented significant changes to the social media platform, notably renaming it to ‘X’, cutting a large portion of its staffbase and above all else, signalling an intent to transform the platform as a payment service provider.
Musk is no stranger to payments, co-founding PayPal in the 90s, but is his ambitions to form X Payments a reflection of the rise of superapps? Or a standalone disruptor to the wider financial ecosystem?
Jonathan Arler, General Manager of payabl. writes for Payment Expert on how X can become a preferred payment provider, the challenges posed by regulation and whether it will be fully realised in the grand scheme of the financial industry.
X is making significant strides toward launching its payments system, signalling the rise of Western super apps akin to Asia’s platforms, WeChat and Alipay. As X works on integrating payments features, such as transactions and transfers, it marks a notable entry into the fintech space and we’re likely to see others follow suit.
Big tech’s fascination within payments is evident and Amazon’s recent partnership with Barclays to launch credit cards is a prime example. This shows a larger trend of tech giants merging and expanding into financial services, changing the way the payments industry operates.
However, whether this ‘reshaping’ will benefit the industry remains uncertain. Various stakeholders—banks, payment providers, end users, and more—are involved in the process, and the impact on each may differ. What remains clear is that change is inevitable.
The impacts of X getting a slice of the pie
X started teasing its intentions to get into payments back in January, beginning with peer-to-peer (P2P) transactions, in-app purchases, and merchant services. While this mirrors the features seen in other super apps, it could have significant ramifications for the broader financial ecosystem.
One of the key opportunities for X lies in maximising its existing user base of over 350 million people. The platform already engages a global audience, and adding payments to its suite of services could fundamentally change consumer behaviour.
We’ve seen that consumers tend to embrace the convenience of handling payments directly within an app they already use. But for the industry, it could be a blessing and a curse.
Globally, and in the US especially, there is still a fair share of the underbanked and unbanked populations – where access to banking and credit is limited. In return, we’ve seen the rise of apps seeking to provide similar financial services to underbanked populations across different regions.
Platforms like M-Pesa in Africa, Paytm in India, and Gojek in Southeast Asia are integrating mobile payments, bill payments, and financial services directly into their apps, helping millions of users access the formal financial system without needing a traditional bank.
So, the move itself is beneficial from a community or a wider industry perspective, considering X already has a massive, engaged user base. Due to the scale and reach of big players like X, it could offer lower transaction fees, making it difficult for banks and established payment processors to compete.
Earlier this month, we saw Walmart’s partnership with Fiserv to offer instant bank payments through its Now Network – which could potentially lead to lower transaction costs, especially for specific use cases like insurance claim payouts. This creates a more competitive landscape where established payment processors, banks, and fintechs will need to innovate quickly to stay in the race.
That being said, regulations could lead to outcomes that differ from initial expectations.
The balance between regulation and innovation
X is unlikely to become a traditional bank due to regulatory constraints that limit tech companies from operating as fully-fledged banks. For example, financial services are heavily regulated in the EU, but regulations are different in markets like Southeast Asia, Africa, or Latin America.
Instead, X is expected to focus on providing financial services by partnering with regulated institutions, allowing it to offer products such as payments, lending, and wealth management while remaining compliant with banking regulations.
The real innovation lies in X’s potential to create a financial platform that seamlessly integrates these services into its ecosystem, making financial tools like payments and loans easily accessible within the app, rather than a standalone banking experience.
It then remains uncertain whether this represents the ‘peak’ of fintech or a true disruption of the industry.
Big players transition: Disruption or collaboration
This raises the question: Will this lead to direct competition or encourage co-opetition (Cooperative competition) between tech companies and banks?
While there are concerns about big companies forming monopolies, many may choose to partner with traditional banks and regulated financial institutions, allowing both sides to use their strengths. Financial companies bring regulatory know-how and can offer financial firms the infrastructure, while tech companies deliver digital innovation and better user experiences.
As the line between technology and finance continues to blur, the future will likely see a rise in these hybrid models. Big tech firms will increasingly test the waters with payments and financial services, bringing super app propositions closer. Nonetheless, working with financial partners is going to be key for compliance and lasting success.
What it means for the financial industry, however, and even more broadly for banking and payments in the digital age, is unclear, but leaning towards innovation rather than disruption.
