Elon Musk is close to winning money-transmitter licenses in key states including New York and California to enable peer-to-peer payments on the social media platform X, while
It's a lofty ambition weighed down by regulatory uncertainty and unproven business models, which have foiled various firms' attempts to connect social media users with secure financial services. Meta, formerly Facebook, has tried and failed many times over the years to drive broad adoption of payments through its platform via
While many of those obstacles remain, the emergence of
Musk is pushing ahead with
X already has money-transmitter licenses in Pennsylvania, Utah, Kansas, South Dakota and Wyoming, and the firm is working on obtaining permission in all of the other U.S. states.
The challenges ahead
Along with rising waves of fraud and scams plaguing existing P2P services and social media platforms, observers see other reasons to doubt X's chances for getting many users to rely on its P2P services.
"X is starting from a deep hole, and I am skeptical of their ability to scale up with the level of competition in the market," said Aaron McPherson, a principal with AFM Consulting, adding that he sees no compelling reason for consumers to turn to X for P2P services.
"What is X's competitive differentiator in P2P? The level of toxicity on the platform means that it will be consigned to niche status, because merchants will be worried about their brands appearing next to offensive content," McPherson said, noting that X has no consumer financial services foundation to build on.
X would also face fierce competition from established P2P providers already rooted in financial services with their own footholds in social media.
For example, despite
PayPal has been at work for years trying to develop an all-in-one app that would combine P2P, shopping, deals and links to social media. Under new CEO Alex Chriss, the firm recently said it plans to sell off extraneous businesses and
Block aims to do something similar. Dorsey recently said he plans to create a "social bank" by linking Block's various financial services resources — its Square payments and commerce platform for small and midsize businesses, the popular Cash App P2P product and the Afterpay buy now/pay later services — in a central hub.
Cash App is "inherently social," with users posting their Cash App address on social media, emails and other channels, Dorsey told analysts last month when announcing fourth-quarter 2023 earnings, and he's aiming to make Cash App the hub of the social bank, which would connect consumers directly to Block's growing range financial services, including Square checking, savings and loan products.
"Being a social bank [we're] starting with peer-to-peer, but expanding beyond that and really getting in the neighborhoods and local communities," Dorsey said.
But the biggest obstacles each of these concepts face right now is fraud that's infecting online shopping portals, as well as a growing number of fake websites masquerading as legitimate e-commerce portals. All of these are spread through social media.
A question of trust
The Federal Trade Commission recently said social media platform-based scams accounted for $1.5 billion in losses last year, and the
Lawmakers are pushing for interventions — Democrats on the Senate Banking Committee have asked Zelle parent Early Warning Services to
Block has a multi-layered approach to preventing fraud and scams leveraging Cash App, and late last year, the firm launched a social media campaign with three 30-second spots educating consumers about risks and red flags.
Meta also provides Facebook users with a raft of fraud-prevention tools and warnings about scams, but
"Trust is a very important element for adding financial services to social media," said Galia Beer-Gabel, a partner at Tel Aviv-based Team8, a venture capital and company-building firm, who says that most existing P2P services cannot expand further on social media without achieving breakthroughs in security and interoperability.
Recent advancements in real-time payments around the world — including
Meta tried to achieve such a breakthrough in 2019 by founding a cryptocurrency consortium called the Diem Association, which aimed to create a global cross-platform payments network, but it
Ultimately, a big-tech firm like Apple or Google, or even Meta, may find a path to create an interoperable cross-border P2P service because of their existing mass adoption and direct connections to consumers, "but each has their own complexities and there's the problem of having too much power concentrated in the hands of for-profit companies," Beer-Gabel said.
Cryptocurrency and blockchain firms could also develop trusted and secure P2P systems, if they can convince users to look past crypto's current volatility, she said. "Crypto and blockchain in general are decentralized, without giving governments or banks or companies too much power, but today no one can point to one mass-adopted crypto service."
Building consumer trust, improving security and expanding the utility of these services through faster payments will be key to their adoption on social media platforms, Beer-Gabel concluded. "It comes down to who can connect the dots most effectively," she said.
