Elon Musk + Your Mobile Phone = Your New Wallet

X.com CEO Elon Musk

The m-payments space is about to get interesting.

FierceWireless.com has learned that on Monday, X.com will announce that its popular email payment service, "PayPal," is accessible via Web-enabled phones. The service will allow anyone with a PayPal account to instantly and securely send money to anyone with a U.S. email address, for free, using their mobile phones. It will be the first person-to-person payment mechanism on the mobile Internet.

The wireless option adds another payment platform for the service's 2 million users, who can already send and receive money from their PC's and PDAs. X.com's PayPal is the leading payment service for online auctions, utilized by 37% of all auctions on eBay. Why write and mail a check for that vintage treasure when you can email the seller the payment instantly and for free?

The power and rapid proliferation (the service launched last November) of X.com's email payment network has not escaped the investor community. In April, X.com closed a $100 million round led by Madison Dearborn Capital Partners. Other investors in the company, which actually represents the marriage of two previous companies, read like a "dream team" of funders: Goldman Sachs, Sequoia Capital, Deutsche Bank, Nokia, idealab!, and Qualcomm. Indeed, it was not a surprise to see X.com on Red Herring's recent ranking of the Top 50 private companies, calling it "the clear leader in electronic cash payments."

However blue-chip its backing, the company has faced some challenges. For one thing, X.com's system has gone down on several occasions. More recently, X.com made news after its CEO Bill Harris was ousted due to alleged personality conflicts at the top.

Now the company is being run by co-founder Elon Musk, previously Chairman. A mere 28-years-old, Musk already has one company under his belt, Zip2.com, which AltaVista purchased earlier this year for $305 million. 

Musk's views on the wireless space are interesting. Contrary to the prevailing attitude, Musk does not see partnerships as necessarily key to flourishing on the wireless Web. For the most part, they are either too expensive or move too slowly, he says. 

We recently had a phone conversation with Musk to learn more. 

FierceWireless.com: On Monday you are announcing your payment offerings via Web-enabled phones. Tell me more about it.  

Elon Musk: The new service gives our users the ability to easily make payments using just WAP- or HDML-enabled phones. When users go to X.com on their phones, the site brings up everything -- the name, the account information, and others.

So if you go to dinner with a friend and don't have cash, you can just split the bill and pay back your friend using your phone. 

FW: And this is the first payment system available on wireless devices?

We believe it is in terms of person-to person payment accessible on Net-enabled phones.

FW: What's your goal when it comes to wireless transactions?

Whenever someone makes payment via a wireless device, we want to provide the payment system they use. We want to be the dominant transaction network. 

If you look at the Web, we have a huge dominant position there, and same with payments via the Palm devices. Having our services available on WAP phones will complete the puzzle.

In the short-to-medium term, we think that more than half of all transactions that take place over a wireless interface will take place through X.com. We are reasonably confident of that because we will be the first out there. Plus, we are going to continue to work really hard to optimize the cell phone interface and also make sure the technology is better than everyone else's. That's the plan for the next three months.

FW: But what about payments to businesses, for example if I wanted to buy a book from Amazon.com? Your offerings are limited to person-to-person transactions, right?

We actually are announcing new business accounts on Monday, so consumers can make payments to businesses and vice versa. There will be some additional functionalities that we will incorporate in these accounts -- like being able to do reconciliation of account totals, better management of account management and transactions.

"The problem with doing deals with carriers is that it is really expensive. And unless you want to pay a lot -- millions -- you get listed on their portal as item No. 20." - X.com CEO Elon Musk

FW: Many Internet companies entering the wireless fray seem to view partnerships with carriers as a must. Does X.com have any relationships with carriers in the works?

We don't have any relationships with carriers. The problem with doing deals with carriers is that it is really expensive. And unless you want to pay a lot -- millions -- you get listed on their portal as item No. 20. It just doesn't seem worth it at this point.

FW: Then how do you get real estate on mobile phones?

One of the advantages of having a one-letter domain name is that you can get to us faster than you can get to us faster than most sites on the menu. X.com is one of only three one-letter domain names in the world.

FW: Several wireless manufacturers and big banks, including one of your investors, Deutsche Bank, recently formed the Mobey Forum, which is dedicated to establishing a financial service environment for mobile e-commerce. Is X.com a part of that?

We are not a part of that. We are in talks with several banks, but the problem is that they move very, very slowly. Our approach is to just go do it, and if someone wants to talk to us, we're here to partner with them.

FW: You have an all-star cast of investors that includes Nokia, Qualcomm, and Sonera in addition to Deutsche Bank. How are you leveraging these relationships?

They give us good advice for our wireless strategy and also introduce us to key people.

Going back to the question about our partnerships, I wouldn't rule out that we do a deal with a major carrier or cell phone manufacturer. It's just that the deals we've looked at have been very expensive. You may see us do one or two deals, but they will be very reasonable deals.

FW: Did you build your WAP site internally, or outsource it? Any advice for other Internet companies looking to go wireless?

We did it all internally. My advice to others is to really focus on the interface. Make sure that it is easy to use. Even if you can save a few key strokes, it can make a big difference.

FW: Now that you offer your services via cell phones, it opens up your payment services to millions of people abroad -- and makes it easy for them to establish a virtual account in dollars. What are the macro-economic implications of this?

Well, we don't offer international accounts quite yet, but we will later this year.

It takes quite a bit to put even a little dent into the global payment system. We're pretty far from dusting the paint on that.

What we really want to provide is a mechanism for one person to pay another, and to make it easier and easier to do so. If we are ever going to have an effect on the global payment system, it's going to be ten years from now -- a long ways away. That said, we do want to be one of the world's leading payment systems so that anyone can transact instantly and with no cost.

FW: What about security? Does cryptography change in the wireless environment?

We definitely have taken additional steps to ensure that people can't break into the system. Unfortunately I can't describe them, because it would help someone figure out how to break into the system.

We developed it all ourselves. We have a lot of cryptography expertise in the company. On our Board of Advisors we have Marty Hellman, the inventor of Public Key Cryptography, which is the basis for all the security that's used on the Web.

FW: What are the biggest challenges that you face in wireless?

I think our challenges are those faced by the wireless devices. We think we are going to be the most successful of anyone in our category on cell phones, but we are still limited by the interface limitations of cell phones. One of the things we've thought about is using a telephone number as a unique identifier for someone's account for identifying the recipient of the funds. Things like that would make it easier.

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