Authored by Adam Sharp via DailyReckoning.com,
For years, Elon Musk has dreamed of turning X (formerly Twitter) into the “everything app”.
Now that X is part of SpaceX (SPCX), and the combined company just raised $112 billion, the time looks ripe.
Elon envisions X as a single place where you can bank, chat, earn, advertise, use AI, shop, and more.
X Money is a key part of that vision. And we just got the first idea of what it will look like.
The program just launched to a small group of users. To attract deposits, X is offering some pretty crazy (and likely temporary) perks:
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6% APY on cash, no deposit limit
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3% cash back on purchases (with exceptions)
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$10 million FDIC insurance (by splitting deposits up between banks)
A 6% yield is not sustainable long-term (at current interest rates). It’s a teaser rate to get people to switch to X Money. Same goes for 3% cash back. That’s 3x higher than the industry average, and will almost certainly not last long.
These teasers may get a lot of people to switch. But it’s unclear how long the perks will last, and it’s currently only available to a small group.
X is not a bank. At least not yet. It’s more like a “neobank”, which manages the marketing and customer relationship, while licensed banks handle the deposits.
But for the user, it feels like a bank account and debit card. Deposits, yield, wire transfers, autopay, P2P payments, etc.
The WeChat Model
Musk’s desire to build the “everything app” may have been inspired by China’s WeChat.
WeChat is owned by Chinese tech firm Tencent. It started out as a simple messaging app. But Tencent rapidly expanded its utility, and today it is basically a digital operating system for the country.
In China, WeChat is used for payment, invoices, government interactions, making appointments, videos, shopping, games, chatting on social media, and much more.
WeChat Pay holds a massive 38% share of payments in China. More than a billion people use the app. It’s so ubiquitous that many Chinese people essentially run their lives through the app.
Largely as a result of WeChat’s success, Tencent has become a $488 billion tech giant.
This is what Musk is aiming for. If X Money succeeds, it could help justify SpaceX’s lofty valuation of $2.2 trillion.
SpaceX’s Huge Ambitions
X (formerly Twitter) has been the least-discussed part of SpaceX.
All the attention has been on rockets and AI. For good reason. Those are both very exciting areas.
But X deserves attention as well. Musk aims to turn the social network into a super-app, much like WeChat. Musk purchased Twitter for $44 billion. If he succeeds, it could be worth much more over the long term.
But running what is essentially a combination bank and social network is no easy matter. For one thing, it makes security far more important (and challenging). It’s going to require a massive customer support team. And that’s one area where Elon’s X has struggled.
X Money is going to be a critical part of building the “everything app”. And the team is going big on the launch.
Think about the 6% APYs X is offering on deposits. Let’s say that X Money attracts $10 billion in deposits over the first year.
Paying a 6% yield on that much cash could cost SpaceX $240 million a year in losses. That’s assuming their own internal return on cash is around 3.5%, plus bank fees and other transaction costs. This is why I assume the 6% APY is temporary.
And the 3% cash back? That appears to be on a debit card, which doesn’t have the same fee support as a credit card. So that could be another very expensive tool to attract users.
But the losses could be worth it. The market they’re targeting is massive. Payments, banking, and eventually – everything.
So will X succeed in becoming a “super app”? Honestly? I think it’s a long shot.
X Money would probably need to be wildly successful and run away with the market.
One problem is that Meta/Facebook (META) will copy anything that looks to be working. The company is notorious for it. And they have a much larger user base. Meta also already has WhatsApp pay and several payment integrations with Facebook.
Another problem is that American banks are extremely profitable, and in some ways act like a cartel. They won’t appreciate X stepping onto their turf, and may fight back. With lawfare, lobbying, or other means.
A Beautiful But Difficult Model
The “everything app”, or the WeChat model has been the dream of every social media company in the world for a while. But it’s going to be very difficult to pull off at this stage of the game.
Then again, we should never count Elon out. If he’s going to go hard after this market, SpaceX certainly has a shot at winning it.
SpaceX just raised $87 billion in its IPO, then another $25 billion in bond sales. That is a massive war chest.
SPCX has big aspirations. And with a $2.2 trillion market cap, it has a lot of growing to do in order to justify that lofty price.
X Money is a calculated risk by SpaceX. One that could pay off big.
I don’t have a position in SpaceX, but it’s going to be fascinating to watch.