elon musk and william harris are not short of ideas, audacity, or (thankfully) money. that bodes well for his new company, the ambiguous name of x.com, and possibly for the wallets of some consumers.
musk and harris want to send you $20. to be more precise, they want to send it to you via email. Since their printer can’t spit out legitimate currency, they’ll put the $20 into an account for you with their fledgling internet bank, X.com. Once you activate your account, they will send you an ATM card that you can use to withdraw cash from an ATM. if you refer someone, you get another $10. Assuming your email list is large enough, you can get up to a thousand dollars. no strings attached.
First the web made everything cheap, then products became free, now entrepreneurs are dishing out $20. sounds silly but musk and harris are not yokels. Musk, the 28-year-old founder and president of X.com, sold his first startup, Zip2, a developer of online city guides, to Compaq last year for more than $300 million. harris, 43, spent six years at intuit and became its chief executive in mid-1998. he left abruptly last september. directors say his departure was unrelated to performance; harris says intuit had gotten too big for him to have the kind of hands-on role he likes best. Harris joined x.com as CEO three months later.
musk and harris have bold plans.”the concept is for a global system for exchanging money,” says musk. translation: it’s bigger than a bank. the competition is traditional: start with conventional paper checks.
Backed by $25 million from Musk, Harris and Sequoia Capital, Palo Alto, California-based X.com aspires to be an online financial supermarket. Even though he’s trying to attract customers through his attractive viral marketing program, Harris says he’ll make money the old-fashioned way: in the difference between the rates he earns on loans and the rates he pays on deposits. x.com is buying a real bank, the first western national bank in rockrose, colorado, to have its accounts insured by the federal deposit insurance corp. x.com also offers three mutual funds. harris and musk plan to expand into merchant money transfers, where there is more room for profit and support for web auction transactions.
x.com can be tiresome, but the challenge he and other web bankers face is psychological: convincing people to put their money into what is, after all, just a virtual institution. in January, x.com admitted that he had designed his system in a way that made it too easy to divert other people’s money to an x.com account from traditional bank accounts. x.com detected about half a dozen questionable transfers and the money was returned. x.com has since changed their policies and requires customers to present a voided check for an account they wish to withdraw funds from.
These stories will continue to fuel public suspicion of internet banking, which has been slow to catch on. Although most traditional banks now offer some web-based services, consumers are still wary. christopher musto, an analyst with market research firm gomez advisors in lincoln, massachusetts, estimates that just 3.4 million people pay bills at least once a month online. even that’s a fig leaf: half the time banks end up cutting up and mailing paper checks.
The largest web bank, the etrade telebanco, has only 130,000 accounts. thanks to the $20 flyers, x.com has already gained 100,000 customers since it opened its virtual doors in December. Harris estimates that about half of those customers have also put some of their own dollars into x.com accounts, but he doesn’t say how much.
When it works, the digital approach can be compelling. Harris says that transferring money to a friend in France will be as easy as clicking “send” from the website. (x.com hopes to add currency exchange in the second half of 2000).
“Every parent of a college student in need of money will like this,” predicts Musk. spoken like a true university student. Mom and Dad may want their check to take their time mailing it.