Will Twitter's upcoming payment service use cryptocurrency?

Original Title: “Breaking: Musk is about to launch cryptocurrency payments on Twitter?”

Written by: Alpha Rabbit Research Notes

Musk and Twitter Payments

According to FT reports, Musk's company has begun applying for licenses in various U.S. states, hoping to gain new revenue beyond advertising. Musk has previously stated that he wants Twitter to integrate financial technology services, such as peer-to-peer transactions, savings accounts, and debit cards.

Of course, Twitter is also advancing the regulatory checks required before exiting payment services. According to documents, in November, Twitter registered as a payment processing entity with the U.S. Treasury, hoping to complete licensing in the U.S. within a year, after which Twitter will seek to expand to gain approval from international regulatory bodies.

Twitter established a subsidiary, Twitter Payments LLC, last August.

What’s the Problem?

The main issue is that Twitter's revenue is still not increasing, so Twitter has begun applying for regulatory licenses across the U.S. and designing the software needed to introduce payment features on the social media platform.

When Twitter was acquired last year, the financial situation was that Twitter had raised about $4.4 billion over approximately 19 funding rounds (early, pre-IPO, and post-IPO); it had accumulated losses of $861 million since going public (excluding pre-IPO losses). Out of 33 earnings call meetings, only 14 mentioned profits. Additionally, Twitter lacks a clear business model, so it still relies on advertising, but too many ads can create significant issues for a messaging platform's user experience.

Esther Crawford is currently one of Musk's most trusted aides at Twitter, and she has begun leading a small team to build the infrastructure needed for Twitter to integrate payment technology.

This new initiative combining financial payments is an important part of Musk's plan to create new revenue sources. Since Musk acquired Twitter for $44 billion last October, the previous $5 billion annual advertising business has been struggling, and this new initiative likely indicates that Musk's push for Twitter Blue was strategically unsuccessful.

At the end of last year and the beginning of this year, Twitter cracked down on many third-party plugins, leaving companies like Tweetbot and Twitterific in trouble. There are speculations that Twitter intentionally closed access to these applications mainly because they do not help drive advertising revenue. This has made it inconvenient for users accustomed to using Twitter plugins and software, leading to an unstable relationship between Twitter and third-party developers.

From a purely commercial perspective, shutting down third-party clients is entirely reasonable. However, Twitter had not done this since 2012, while Musk insisted on making the advertising model work. As a result, companies like Twitterrific, which has been around for 16 years, have found it difficult to operate.

Next, Musk hopes that Twitter can provide financial technology services, such as peer-to-peer transactions (think carefully about what this is?), savings accounts, and debit cards, as part of an overall plan that includes information, payments, and commerce.

Of course, it is worth noting that Musk has entrepreneurial experience in the payment field. In 1999, Musk co-founded X.com, one of the earliest online banks, which later became part of the payment giant PayPal.

However, Musk's vision may go far beyond this; he envisions turning Twitter into a super app, also known as a Super App/Everything App, which includes exploring:

1. Allowing users to directly reward creators
2. Enabling users to purchase items directly through the platform
3. Allowing users to pay each other directly.

Musk hopes that the system will initially use fiat currency, but insiders indicate that there may also be plans to add cryptocurrency functionality in the future.

In the early proposal Musk submitted to investors for acquiring Twitter in May last year, he stated his goal was to generate about $1.3 billion in payment revenue for Twitter by 2028.

Of course, data from payment company FXC Intelligence shows that hundreds of thousands of Twitter users share links to third-party payment options in their tweets or accounts, meaning that Twitter itself is already a platform where many payment scenarios occur.

References:

1. https://www.ft.com/content/9d84d534-b2dd-4cff-85d1-aee137b26a45

2. Cryptocurrency News | Seeking Alpha

3. Twitter Kills Third-Party Clients, Twitter's Tortured History With 3rd-Party Apps, The Twitter Files Business Model - Ben Thompson