First published on This Week In FinTech
Hot off the press in the world of FinTech: X (you know, the platform that's so much more than tweets) is making a splash in the FinTech ocean with its newly minted Money Transmitter Licenses (MTLs). You've probably already heard about X's big vision of becoming an all-in-one app; taking a leaf out of WeChat's book, Elon Musk envisions a platform where users can seamlessly read news, hail rides, book appointments, pay taxes, and more, all within a single platform. Central to this grand vision are Money Transmitter Licenses (MTLs), and as of December 2023, X has snagged these licenses in 12 states! Becoming a licensed money transmitter is a notoriously long process for any company, but the capabilities X can unlock from there will have a colossal impact on the fintech industry. Let's decode the early takeaways on what obtaining MTLs means for X, and why the platform is still year(s) away from becoming an all-in-one app.
Magic unlocked by MTLs
MTLs are akin to golden keys unlocking the vast kingdom of financial services. They allow the holder of the license to send, receive and hold money for its customers. Imagine a world where X not only connects people through tweets but also through financial transactions.
Here's the scoop on what these licenses could unlock:
- Peer-to-Peer transactions reinvented: X, armed with its newly acquired Money Transmitter Licenses, is about to transform how we send money to each other. Imagine this: you're chatting on X and decide to split the dinner bill or pay back a friend – it's as simple as a few taps within the same conversation window. This effortless flow of transactions within X's platform is a direct challenge to Venmo and CashApp. What sets X apart isn't just the convenience; it's the integration into an already established network, where millions interact daily. This native functionality within X could significantly disrupt the current peer-to-peer payment landscape, outpacing Venmo and CashApp by offering a more streamlined, integrated experience that aligns more closely with users' natural digital habits.
- Creator interactions re-imagined: X could also be setting the stage for a new era of creator-audience interaction. No longer limited to likes and comments, users could now show their appreciation with direct financial support, transforming the way we engage with digital content. Beyond just receiving tips, creators could even directly sell products or services within the X app, seamlessly receiving payments without ever leaving the platform. This integration streamlines the entire process, from marketing to transaction, making X a one-stop-shop for creator-driven commerce.
- Banking features without becoming a bank: With the acquisition of Money Transmitter Licenses (MTLs), X's capabilities extend far beyond just payments. These licenses allow X to hold funds on behalf of its customers, and even facilitate bill payments for them in many states. The ability to hold funds opens up a realm of possibilities for X to introduce services typically offered by traditional banks. One such potential offering is high-yield savings accounts.Imagine a creator has been receiving direct payments from X’s users and they also need to pay their friends directly via X, they will be inclined to keep their cash in the app, once this starts happening, X could provide them with high interest rates on the deposits to help their money grow within the app. Furthermore, X could also offer bill payments that could be directly connected to the deposits in the X app. If you think about it, the primary functions of a bank account is receiving money, handling bills and expenses, transferring funds, and saving money. And now all of this can now all be managed within the X app, thanks to MTLs.
- Global payments, local Ease: MTLs could also unlock X’s ability to provide international remittance from the US to other countries. Imagine the simplicity and convenience this unlocks for X's extensive international user base. Users in the US could effortlessly send money to friends and family in different countries, all within the familiar interface of X. Furthermore, X's international payment capabilities could extend beyond mere personal remittances. US users could pay creators or microbusiness in other countries via X’s app. This could disrupt incumbents like western union as well as Fintechs such as Xoom/ remitly.
Navigating the Regulatory Maze
Transforming X into this versatile platform isn’t easy. X's vision is still a ways off from becoming reality. Why, you might ask? Simply put, navigating the complex regulatory terrain of acquiring MTLs is a time-intensive marathon, not a sprint. Each state in the U.S. is like a gatekeeper with its unique set of rules. Obtaining an MTL can be as expensive as it is time-consuming. We're talking about a process that can cost $1.5 million (Before Brico, of course!) and take about two years to get approval in all 49 states -Montana only requires a registration.
Let’s quickly understand why this process is so complex. MTL application involves submitting detailed information about the business, including financial statements, background checks for key personnel, fingerprinting, business plans, compliance policies, and proof of a certain level of net worth or bonding. Historically, all of this process was extremely manual and involved a lot of repetitive tasks that were similar yet slightly different across all 49 states. And after submitting all the docs, there is a long wait to hear back from the regulators. Majority of the states get back with approval in 2-6 months but the big states can take 2+ years to approve the license.
If you check out the tweet posted by Elon Musk on the states where X has been approved to be a money transmitter, you will notice that 3 states are conspicuously absent. California, New York, and Texas are the most sought out states to apply for MTLs but they are also the most difficult states to get approved in. They take longer, way longer to get approved. These states are famous for their meticulous scrutiny and high requirements. The requirements? Extensive. For CA and NY there are pre-filing meetings that the applicants have to go through before they can even submit their licenses. This alone adds a few extra weeks to the whole process. Similarly, NY requires a very specific resume for the compliance officer of the applicant and even has a special InfoSec policy requirement. Even if an applicant submits everything accurately, regulators will come back with a lot of questions specifically on the ability of the applicant to implement AML policies, InfoSec policies and avoid consumer harm. This back and forth with the regulators can range from weeks to months depending on the issue. Even after all of this, there is no guarantee that the regulators will approve the MTLs in these states. There have been numerous cases of applications being returned by the state regulators in NY and CA, if they didn’t deem the applicant ready to become a money transmitter. So in the best case scenario, X will receive these licenses in the next 12-18 months (assuming they applied in 2023) and in the worst case scenario NY and CA could hold up X’s all-in-one app strategy for several years.
In Conclusion: The Dawn of X's FinTech Era
X’s ability to overcome these regulatory challenges and fully leverage its MTLs will be pivotal in realizing its vision. If successful, X could redefine the financial services sector, merging traditional banking capabilities with the ease and familiarity of a social media platform, and setting a new benchmark in the FinTech industry. X's shift from a social media platform to a FinTech innovator is more than a mere strategic pivot; it's a complete reinvention of its identity. Successfully navigating this transition could see X capturing a significant market share, challenging both established incumbents and innovative FinTechs. X's endeavor is about more than just competing in new markets; it's about redefining the digital ecosystem, fusing social connectivity with financial services.
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