A lesser man would look at the battered fintech landscape and say, “Party over, oops, out of time.” But not Elon Musk! Musk is going to party like it’s 1999, with his new toy called Twitter.

At the start of 1999, Musk was emailing me about his plans to remake banking with a startup called X.com — plans that accelerated when he merged it with another startup that eventually became PayPal. On Wednesday, he talked up strikingly similar ploys in a Twitter Spaces chat.

Musk had been saying for a while that he wanted to turn Twitter into a super app, a do-it-all service called X that encompassed communication, news, shopping, and payments. These apps have been successful in China — think WeChat — but not so much elsewhere, though that hasn’t stopped American tech companies from trying.

• What’s most remarkable about Musk’s plans for Twitter is that they sound an awful lot like his X.com playbook from the turn of the millennium: $10 bonuses for new accounts, high-yield savings accounts, sending money to other accounts, and eventually checking accounts and debit cards. (For kicks, I dug up a filing for what was briefly called the “X.com U.S.A. Money Market Fund.” Retro!)
• Musk argues that people who are paying Twitter $8 a month for Twitter Blue or earning money from new creator features will decide to just stash their cash with Twitter.
• Twitter seems serious: It’s registered with FinCEN, which helps oversee money transmitters. (There are a lot of licenses required to be in the money business, as Musk and his compatriots learned the hard way at PayPal.)
• Oh, and the X.com domain? Musk bought it back from PayPal in 2017.
• One problem with his scheme: Those $10 bonuses for new accounts? Even the modern PayPal, which tried using them again last year to boost its user numbers, found that they attracted fraudsters. Can you imagine what the spambots will do if Musk waves cash money in their silicon faces?

There’s a bigger problem, though: Musk’s wannabe super app faces a ton of competitors that didn’t exist two decades ago. One of the chief ones is run by someone close to him.

• Under Jack Dorsey, Cash App has become a major growth engine for Block. It already has those banklike features Musk is talking about. A lot of rappers, celebrities, and porn stars like to tweet their Cash App handles, or “cashtags,” which start with a dollar sign instead of a hashtag.
• Dorsey supported Musk’s bid for Twitter and rolled his stake into Musk’s new company, so Musk’s competitive push seems like a particularly unkind form of payback. But hey, it’s SIlicon Valley and if you can’t shiv your friends, who can you shiv, really?
• Anyway, rising rates have surprisingly boosted the fortunes of some neobanks, since consumers now have more of a reason to hunt for yield and consider dumping their paleobanks. If there’s a time to try an X.com revival, it’s now.

The biggest challenge Musk’s super app may face is Musk. He has a famously short attention span and he’s already careened from one idea to another in his mission to reinvent Twitter. As PayPal learned, getting people to trust you with their money requires painstaking attention to detail, from the design of a checkout button to fraud-catching algorithms. Musk hasn’t been in that business for decades. There’s a lot he missed the first time, and a lot he has to learn. And there is little sign that he has the patience required.

A lesser man would look at the battered fintech landscape and say, “Party over, oops, out of time.” But not Elon Musk! Musk is going to party like it’s 1999, with his new toy called Twitter.

At the start of 1999, Musk was emailing me about his plans to remake banking with a startup called X.com — plans that accelerated when he merged it with another startup that eventually became PayPal. On Wednesday, he talked up strikingly similar ploys in a Twitter Spaces chat.

Musk had been saying for a while that he wanted to turn Twitter into a super app, a do-it-all service called X that encompassed communication, news, shopping, and payments. These apps have been successful in China — think WeChat — but not so much elsewhere, though that hasn’t stopped American tech companies from trying.

• What’s most remarkable about Musk’s plans for Twitter is that they sound an awful lot like his X.com playbook from the turn of the millennium: $10 bonuses for new accounts, high-yield savings accounts, sending money to other accounts, and eventually checking accounts and debit cards. (For kicks, I dug up a filing for what was briefly called the “X.com U.S.A. Money Market Fund.” Retro!)
• Musk argues that people who are paying Twitter $8 a month for Twitter Blue or earning money from new creator features will decide to just stash their cash with Twitter.
• Twitter seems serious: It’s registered with FinCEN, which helps oversee money transmitters. (There are a lot of licenses required to be in the money business, as Musk and his compatriots learned the hard way at PayPal.)
• Oh, and the X.com domain? Musk bought it back from PayPal in 2017.
• One problem with his scheme: Those $10 bonuses for new accounts? Even the modern PayPal, which tried using them again last year to boost its user numbers, found that they attracted fraudsters. Can you imagine what the spambots will do if Musk waves cash money in their silicon faces?

There’s a bigger problem, though: Musk’s wannabe super app faces a ton of competitors that didn’t exist two decades ago. One of the chief ones is run by someone close to him.

• Under Jack Dorsey, Cash App has become a major growth engine for Block. It already has those banklike features Musk is talking about. A lot of rappers, celebrities, and porn stars like to tweet their Cash App handles, or “cashtags,” which start with a dollar sign instead of a hashtag.
• Dorsey supported Musk’s bid for Twitter and rolled his stake into Musk’s new company, so Musk’s competitive push seems like a particularly unkind form of payback. But hey, it’s SIlicon Valley and if you can’t shiv your friends, who can you shiv, really?
• Anyway, rising rates have surprisingly boosted the fortunes of some neobanks, since consumers now have more of a reason to hunt for yield and consider dumping their paleobanks. If there’s a time to try an X.com revival, it’s now.

The biggest challenge Musk’s super app may face is Musk. He has a famously short attention span and he’s already careened from one idea to another in his mission to reinvent Twitter. As PayPal learned, getting people to trust you with their money requires painstaking attention to detail, from the design of a checkout button to fraud-catching algorithms. Musk hasn’t been in that business for decades. There’s a lot he missed the first time, and a lot he has to learn. And there is little sign that he has the patience required.

Binance isn’t buying FTX after all. The crypto giant said Wednesday it has decided that it “will not pursue the potential acquisition” based on a “corporate due diligence” review.

The company cited recent reports that FTX allegedly “mishandled customer funds” and that the company is under investigation by U.S. regulators.

Binance said it had hoped “to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help.”

The reversal caps a tumultuous week in crypto which began with reports raising questions about FTX’s finances. That triggered Binance’s decision to liquidate its holdings in FTX’s native FTT token, which led first to a war of words between Binance CEO Changpeng "CZ" Zhao and FTX's Sam Bankman-Fried; to a further selloff in FTT and a move by FTX to stop customer fund withdrawals; and finally an announcement Tuesday that the two crypto powerhouses had tentatively agreed to merge.

Zhao had said his company had signed a “nonbinding” agreement, noting that they had the “the discretion to pull out from the deal at any time.”

Far from reassuring the market, the uncertainty surrounding FTX’s future triggered a broader crypto market selloff. Bitcoin fell below $16,000, erasing recent gains since the start of crypto winter.

“Every time a major player in an industry fails, retail consumers will suffer,” Binance also said. “We have seen over the last several years that the crypto ecosystem is becoming more resilient and we believe in time that outliers that misuse user funds will be weeded out by the free market.”

FTX could not immediately be reached for comment.

Upstart is warning that the worst may still be on the way, even as rising interest rates and falling loan volumes have already caused the once high-flying fintech lender's stock to sink nearly 90% this year and prompted a round of layoffs last week.

The company reported earnings on Tuesday that missed the mark Wall Street analysts had set. Its share price fell more than 20% in after-market trading, recovering only slightly Wednesday. CEO Dave Girouard cautioned analysts that there may be more pain to come.

"We’ve chosen to take a conservative position with respect to the direction of the economy in the coming quarters," Girouard said on the company's earnings call. "In other words, we assume the worst is in front of us. We’ll be pleasantly surprised if this turns out not to be the case."

The San Mateo company reported a 31% annual decrease in revenue for the third quarter and a net loss of $56.2 million, compared to a roughly $29 million profit in the third quarter of 2021.

The company is projecting further drag on its revenue. It expects between $125 million and $145 million in fourth quarter revenue, which at the low end would mark a 58% decrease from the final three months of 2021.

Upstart says it is not a bank, but rather a technology provider for lending that uses artificial intelligence to write productive loans to borrowers overlooked by traditional creditors. It makes most of its money by charging fees for matching financial institutions with borrowers.

Higher interest rates and economic uncertainty have wreaked havoc on that business, often referred to as marketplace lending. Upstart is approving 40% fewer applicants compared to a year ago and at rates 800 basis points higher, according to Girouard.

"Many of our lending partners have reduced their originations, raised their rates, or both," Girouard said. "This is generally out of an abundance of caution with respect to the economy and despite the fact that their Upstart-powered loan portfolios have met or exceeded expectations since the program began in 2018."

Consumers are also in growing trouble. CFO Sanjay Datta said on the call that defaults are rising, personal savings rates are declining, and credit card debt is at record levels.

Funding problems

Upstart last quarter warned that the funding for its loans was under pressure as investors shifted away from backing riskier types of consumer debt. It said it would hold more loans on its balance sheet as it sought stable funding.

The company reported holding about $700 million in loans, notes, and residuals at the end of the third quarter, compared to $140 million at the same point last year.

Company officials reiterated to analysts that Upstart does not plan to become a chartered bank, a move that has allowed competitors SoFi and LendingClub to take in deposits and use the low-cost funding source to write loans directly.

"We believe fundamentally in a marketplace structure in the sense that a lot of lenders making independent decisions over the long haul is going to get to the right answer," Girouard said.

Feature, or bug?

That model did in fact allow Upstart to scale up quickly during the low-interest rate environment of 2021. The company originated nearly $12 billion in loans and its share price soared from $20 at its December 2020 IPO to $400 in October 2021. But analysts expected rising interest rates would challenge Upstart along with a list of other fintechs that thrived one year ago, and that is clearly playing out.

Last week, Upstart laid off 140 hourly employees, blaming “the challenging economy and reduction in the volume of loans on our platform." Girouard said Tuesday that the company is reducing its marketing spending and limiting new hires.

While saying he was unhappy with the overall results, Girouard said the company added 17 lending partners to its platform last quarter, matching the total for all of 2021. The company has about $830 million in cash on its balance sheet and is reducing advertising costs and slowing hiring in response to the worsening conditions.

Girouard cast the reduction in loan volume as "a feature of our platform, not a bug," as he said Upstart’s modeling is adjusting to the current conditions.

"Our results in Q3 were certainly not what we wanted them to be," Girouard said. "But I also believe they reflect the Upstart team making the right decisions in a very challenging economic environment for the long-term success of the company."

Wall Street does not appear to be buying that view just yet. Upstart’s shares were trading down about 15% midday Wednesday. Wedbush lowered its target price for Upstart's share from $15 to $10 and noted in a report following earnings that the company, founded in 2012, has never been recession-tested.

"We fear that weakening delinquency and loss trends combined with macro- and geopolitical risks is leading to waning appetite from Upstart's credit buyers and the securitization market," wrote analysts David Chiaverini and Brian Violino. "The biggest risk to Upstart, in our view, is its reliance on third-party funding, and this risk tends to become exacerbated during recessions.

Election Day featured an unexpected loser: crypto.

Voters were trooping to the polls Tuesday as news broke that Binance was offering to buy FTX. The rescue deal — nonbinding, and itself shaky — came in the wake of a growing scandal over FTX’s opaque finances and a market sell-off sparked by growing uncertainty across the industry.

Kristin Smith, executive director of the influential crypto lobby group Blockchain Association, said she “forgot it was Election Day.” The rapid-fire tweets revealing the deal were “absolutely mind-blowing,” she said.

“I don’t think I’ve ever experienced anything like this,” said Smith. “This was the most remarkable day I’ve had in my career working in crypto.”

For the crypto lobby, the Binance-FTX deal — and its apparent collapse Wednesday — reignited fears about the industry, likely setting back recent efforts to change regulators’ and policymakers’ perception of the young, fast-growing market.

“This is a step backwards in terms of the advocacy in Washington,” Smith said.

Gabriella Kusz, CEO of the Global Digital Asset & Cryptocurrency Association, agreed: What happened with Binance and FTX “will most definitely impact the ability of FTX and the organizations they support to work in good faith with legislators and regulators,” she told Protocol.

“D.C. is not a very forgiving town and people tend to have long memories,” she added. “Integrity is very hard to build and very easy to lose.”

Crypto has been building up its presence in Washington over the past year, as the industry faced heightened regulatory scrutiny and challenges.

The industry found itself in a major battle last year when crypto companies and lobby groups including the Blockchain Association tried to block provisions that would have required miners and node operators to report crypto transactions like brokerages.

While the campaign failed, the issue helped galvanize the industry and its allies in Washington. Over the summer, Sens. Cynthia Lummis and Kirsten Gillibrand introduced the Responsible Financial Innovation Act, which seeks to clarify regulations for crypto. The bill largely endorses the industry view that many cryptocurrencies should not be regulated as securities.

Another bill introduced before the Senate Agriculture Committee, the Digital Commodities Consumer Protection Act, would grant the CFTC greater authority in regulating digital assets, effectively minimizing the role of the SEC.

The industry had high hopes for the DCCPA, which had a chance of getting marked up before the end of the year.

But the FTX collapse has probably derailed that, Smith said. “I think Congress is going to want to incorporate anything they learned from this incident into any regulation going forward,” she said. Perianne Boring, founder of the Chamber of Digital Commerce, said she expects policymakers “will want to take a wait-and-see approach to better understand the FTX-Binance deal.”

Cathy Yoon, chief legal officer at MPCH, said she expects the work of lawyers who have been part of the markup and negotiation process for the different crypto legislation will continue. “But I also think there will be more skepticism from Congress whether there will be another rug-pull-type event where some participants lose credibility overnight,” she told Protocol.

Smith cited another key reason why the push for the DCCPA could lose steam in Washington: Sam Bankman-Fried had been “one of the biggest backers of that legislation,” she said.

In fact, Bankman-Fried has played a critical role in the crypto lobby in Washington. Dubbed the “crypto prince,” Bankman-Fried became famous for saying that he planned to spend $1 billion on political campaigns through the 2024 presidential race, though he subsequently called the statement a “dumb quote.”

Bankman-Fried played such a prominent role representing crypto in Washington that the collapse of his empire will undoubtedly hurt the industry, said crypto critic Molly White.

“SBF was just spending a lot of time in D.C. schmoozing with lawmakers,” she told Protocol. “If I were those legislators, I would be questioning a lot of his suggestions after seeing what was happening behind the scenes at FTX.”

But Smith said Bankman-Fried “was not the only voice in Washington working on these issues.”

“He was a very effective advocate and built a lot of relationships, but there are a lot of us that are working to build the next generation of financial services,” she said.

Crypto still has allies in Washington, some of whom expressed support for the industry in the wake of the FTX collapse. Sen. Lummis said what happened provides “the clearest example yet of why we need clear rules of the road for digital asset exchanges in the United States.”

Mark Hays, a senior policy analyst at the Americans for Financial Reform, said the FTX collapse and the uncertainty it triggered “strike a blow for the credibility of the industry, and for calls to advance regulatory legislation quickly in the name of fostering crypto innovation.”

“We should be prioritizing protecting consumers and investors, not creating safe spaces for crypto magnates to play fast and loose with investors’ assets,” he told Protocol.

Smith said the FTX crisis unfolded so suddenly that it left the crypto community “in shock.” Given what has happened, “I don’t think there’s any chance of legislation at all” this year, and the focus will be “on hitting the reset button and starting over.”