Inside Elon Musk’s Stealth Move to Build X into a Pay-By-Bank Powerhouse

Pay-by-bank has lagged in the U.S. even as it has gone gangbusters in other countries. A simple-sounding pilot by X, the former Twitter, in the Philippines and New Zealand, could make the trend wash up big time on American shores.

The pay-by-bank channel is expected to boom in 2024, but few may have foreseen that a new impetus would come from serial disruptor Elon Musk. The beginnings of Musk’s following through with his ambitions to turn X, the social media platform formerly known as Twitter, into a banking and payments super app ultimately revolve around a pay-by-bank gambit.

Pay-by-bank entails payments being sent directly through the banking system from one deposit account to another, no checks, no cards. Given the size of the social platform, X represents a mammoth canvas for trying out pay-by-bank in a big way.

Keep Track of the ‘Not a Bot’ Project

Payments consultant Richard Crone says banking and payments providers must keep their eyes on the “Not a Bot” effort that X began testing in mid-October. That’s where the story lies.

Publicly, Crone says, X presented “Not a Bot” as an effort to improve processing for new X subscribers in two countries, the Philippines and New Zealand, part of a push to combat bots and spammers on the social platform.

Two items will be required to verify an account. First, users will have to provide their phone number. Then they will be required to pay a $1 fee for full access to X.

Crone says the income from those fees is chicken feed compared to what’s really going on.

“That transaction costs [X] 33 cents, essentially as if they were paying a 33% interchange fee,” says Crone. “But they aren’t charging the dollar to generate revenue. They want to preauthenticate and validate the user.”

Once X has the user’s verification and their bank payment account information, that person becomes much more valuable to advertisers and to X itself. Think of social commerce, selling things inside social media apps. (Social commerce is an area that fintech investor Ribbit Capital is focused on now, as described in an earlier article on this site.)

And then think about super apps.

“This paves the way for all the direct services X might offer as a financial super app, including pay-by-bank.”

— Richard Crone, payment consultant

Read more: ‘Pay-by-bank’ Trend Builds Momentum into 2024

The Philippines Make a Huge Test Market for X

Let’s put X’s action into perspective. Crone says it’s important to understand why the Philippines are part of the test. He says the country is one of the top five destinations for remittances from the U.S. to foreign nationals and for other purposes, to the tune of around $30 billion.

This is a way of testing some big pipes, in other words, that could enable X to undercut the prices charged by existing international person-to-person payment providers like Western Union, MoneyGram and PayPal’s Xoom.

“Most people in the financial services industry aren’t tracking this because it looks like they’re just doing a subscription payment,” says Crone. “No, they’re doing this to authenticate a user and to retain a payment credential on file as a system of record.”

“And that,” he adds, “is the foundation of pay-by-bank.”

Some might see this as a Trojan horse, of sorts, but Crone sees it as potentially a brilliant coup that could have ripple effects beyond prediction. Someday, he envisions banks and credit unions piggybacking offers via X’s platform that they previously used digital-only affiliates to market. And it will have started with pay-by-bank.

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