Cross River aids X Money's quest to disrupt banking

• What's at stake: X Money has ramped up work with sponsor bank Cross River as it tries to scale its financial services app. 
• Expert quote: "This is an ambitious undertaking for Cross River, and if it succeeds, will do much to enhance their reputation among fintechs and banks,"---Aaron McPherson, principal at AFM Fintech.
• Forward look: Analysts say X Money will be challenged to build scale for its app. 

Elon Musk's multi-year strategy to turn the X social network into a digital bank has entered a new phase as the X Money venture turns to a sponsor bank to support a range of payments and financial services. Banking-as-a-service provider Cross River Bank has gone live with a fully-launched service that embeds interest-bearing FDIC-insured accounts, a Visa debit card and payment services into X Money, building on an earlier limited rollout. 

It comes at a challenging time for both firms. X is trying to embed comprehensive financial services into a social media app — a strategy that has failed in the past. Cross River is battling to build its business as a flurry of fintechs have received bank charters that threaten the sponsor bank model. 

Cross River

The Fort Lee, N.J-based Cross River sells bank technology that can be accessed through an application interface. It claims to support the entire bank infrastructure, eliminating a need for multiple partnerships.

For X, the potential benefit is to quickly scale regulated and insured banking services, sacrificing some of the revenue while offloading the compliance and payment processing burden.

Cross River has been expanding its services in the past year, building its own AI engine that verifies transactions for Bank Secrecy and Anti-Money Laundering risk management. It also recently began settling stablecoin transactions with Visa over the Solana blockchain.

Like other sponsor banks, Cross River is potentially threatened by fintechs seeking, and often receiving, bank charters Regional and community institutions rely on sponsor banks, with sponsor banks getting as much as 51% of their revenue and deposits through these partnerships, according to a 2024 report by identity risk management company Alloy.

"This is an ambitious undertaking for Cross River, and if it succeeds, will do much to enhance their reputation among fintechs and banks," Aaron McPherson, principal at AFM Fintech, told American Banker. "If there are problems, however, they will be more visible and have larger implications."

Cross River has more than 120 clients, including Stripe, Affirm, Best Egg and Coinbase, and manages an $8 billion balance sheet. It has also had regulatory challenges, including a 2023 FDIC consent order for violations of fair lending regulations. Cross River did not admit to wrongdoing, but also said that it updated its internal systems to address the FDIC's concerns.

X.com did not return a request for comment and Cross River would not comment for attribution. In an email, Cross River's public relations office said, "Social media is rapidly emerging as the new mainstream for ecommerce, and embedded finance has the potential to fundamentally reshape the user experience. By integrating embedded financial services, social media platforms can offer native, in-app payments that allow users to discover, shop and complete purchases without ever leaving the app."

X is relying on Cross River to reverse years of failure in social media banking. X, the former Twitter, discontinued a BigCommerce-supported "buy button" in the late 2010s, saying it was deemphasizing e-commerce. Rival social media platform Meta, which operates Facebook, also failed with the Diem stablecoin following years of political and regulatory pressure.

"Anytime a financial experience is stitched together using multiple third-party providers, there's inherent risk that things fall through the cracks between systems — whether that's in oversight, communication rifts, or varying levels of regulatory rigor. Cross River controls its infrastructure end-to-end, giving us complete visibility over the entire system," Cross River said in a statement. 

X Money's potential, and roadblocks

X Money offers 6% APY on deposits with no minimum balances, with FDIC insurance for deposits held at Cross River, 3% cash back on purchases, no transaction fees for cross-border payments and a P2P transfer network available to the social network's 570 million monthly users. 

While X Money has long been viewed as a potential rival for fintech apps, traditional banks may face more of a threat, according to KBW Managing Director Sanjay Sakhrani, though Sakhrani said X Money will have a difficult time scaling. 

"X Money's offering appears to skew upmarket versus what the investment community seems to think is aimed at the likes of Block and Chime, whose customers barely have savings," Sakhrani said in a research note. "Even the likes of PayPal/Venmo offer benefits like entrenched merchant acceptance, checkout ubiquity and ecosystem stickiness, which X Money doesn't seem to aim to disrupt. We think traditional banks with yield-seeking customers could have most to lose if X Money eventually has success. However, a 6% yield on deposits to us seems unsustainable."

The window for social media banks may have passed, according to payment experts.

"A social media money solution seems a bit old school, to be honest," Tony DeSanctis, senior director at Cornerstone Advisors, told American Banker.  "Facebook Pay and others have tried it and failed. I think there is a possible use case for influencers on the platform where you incent them to use your account rather than a traditional bank for payments."

The average X user is likely not even posting on the platform beyond comments, according to DeSanctis. "Real humans creating content specifically in the U.S. is likely a fairly small market, so I do not see this as a major disruption. My guess is that this ages about as well as Facebook Pay. We shall see."