Elon Musk’s social network X completed a key step in becoming an “everything” app last week with its partnership with Visa, which will allow users to make purchases directly through the social media channel for the first time. The move could provide enormous upside for the fledgling payment division if it can entice users to use it.
X Chief Financial Officer Linda Yaccarino announced X Money and the partnership on the social media platform, saying the service would debut later this year. X Money would allow for instant funding to consumers’ X Wallet via the Visa Direct transfer app, supporting debit card connection for peer-to-peer payments and instant transfers to bank accounts.
Visa CEO Ryan McInerney
“We want to be everywhere money is moving — by embedding ourselves directly into social platforms, e-commerce sites and marketplaces, we meet creators where they are and streamline the entire process of getting paid,” he said.
The partnership marks a great first step for the social network to make instant, irrevocable payments and solves a core funding problem for the X payments system, said Eric Grover, principal of Intrepid Ventures.
“This gives [X] very easy access to a very ubiquitous, instant payment network,” Grover said. “A lot of the public discussion around so-called instant payments in the U.S. revolves around RTP and FedNow, but neither one of those has nearly the network reach that Visa Direct does.”
Payments use cases for X are plentiful. Visa Direct’s integration enables payments to be embedded into X users’ live streams or videos similar to the way TikTok Shop is structured, which allows viewers to make purchases on the platform while watching videos from content creators, an economy that has been called “shoppertainment,” said Richard Crone, founder and CEO of Crone Consulting.
This lets X be the so-called merchant of record on each X shoppertainment transaction and could help supplement falling advertising revenue for the
But shoppertainment comes with high take rates — 5% to 8% — that far exceed traditional interchange fees, Crone said. Purchase conversions are higher on shoppertainment transactions, too. TikTok Shop, for example, achieves a 10% purchase-to-view conversion rate compared to e-commerce’s 2% to 3%, according to Crone Consulting’s independent estimates.
“[X] needs a new monetization model. The old advertising model doesn’t work,” Crone said. “This is an incredibly profitable thing, and if X Money is driving social commerce and embedded payments inside short-form videos, and the take rate by the platform is 5% to 8% fully burdened, then you can see an enormous profit margin here.”
TikTok Shop, with 7 million sellers globally and 150 million active users, sets a benchmark for X Money’s potential scale using Visa Direct’s access to 70 million merchants worldwide, Crone said.
And fees charged on those transactions could go even higher, depending on what is being sold, Grover said.
“The marginal costs of what they’re selling each other, in many cases, is zero. So you can charge pretty rich fees and still everyone should be happy,” he said. “The analogue I’m thinking of is the App Store on Apple. They were charging 30% for payments made on the App Store.”
The direct relationship with Visa also makes the integration of physical cards and digital equivalents more streamlined, which could open up other forms of commercial acceptance for X Money at other e-commerce platforms or at the point-of-sale, said Aaron Press, research director of worldwide payment strategies for IDC.
“Whereas Venmo and Zelle have to do a different level of integration in order to be accepted by businesses, the Visa involvement has the potential to make that a lot easier,” Press said.
Visa’s global footprint will also be advantageous to X Money as it looks to scale. “Visa is genuinely global and that is a potential advantage,” Press said. “This is something we don’t think a lot about in the U.S. market, but these cross-border payments have a lot of potential and a lot of challenges. So sitting on a rail that is default global is probably the most interesting thing about it.”
But getting consumers to actually use a new payment scheme presents the biggest challenge to X Money even if the social media platform has millions of daily active monetized users.
Most consumers are already using payment platforms that they are comfortable with, whether those platforms are for consumer-to-business or peer-to-peer payments, Intrepid’s Grover said.
“Those systems that they’re using … are reasonably mature. They have critical mass. They work reasonably well and they’re a habit for the users, so you’ve got to overcome that,” he said.
Other challenges exist, too. X Money is wading into a very competitive market in terms of peer-to-peer and wallet-based payments, Press said.
“Mobile wallets tend to be very local, or at least domestic, and that’s been true for a long time,” Press said. “Duplicating mobile wallet schemes from market to market has proven very, very difficult.”
It’s also not clear if there’s demand for a super app outside of China and Korea, where super apps like WeChatPay and AliPay are popular, Press said. “It is even less clear if there is room for another super app in markets where one is already dominant.”
X Money could adopt a creator economy model similar to Google-owned YouTube, which pays creators based on engagement, to help get funds circulating in its wallet, said Elias Ghanem, Global Head of Capgemini Research Institute for Financial Services.
“The minute [people] have a balance on X, the more they will circulate it … it’s a closed loop,” Ghanem said. “Who is the winner of the closed loop? It’s the one who owns the loop.”
For banks the key to capitalizing in this market will be ensuring that their debit cards are registered “at the edge of networks like X Money and TikTok Shop to stay competitive in the fast-evolving social commerce ecosystem,” Crone said.
Still, X Money’s ability to scale will be key to its success.
“That’s always the hard thing with a payment system,” Grover said. “You have to really find a way to network critical mass in whatever market you’re gonna serve.
“Until you do that, you don’t really have any value to anybody,” he said.
