How Square Cash went from fringe app to centerpiece

Register now

Square burst on the payments scene nine years ago with a card reader that allowed small merchants to accept plastic card payments through their mobile devices. Its Square Cash app received considerably less fanfare — until now.

The company plans to promote its plastic Cash Card to serve the growing audience of Square Cash users, transforming what used to be a bare-bones P-to-P app into something that more closely resembles a prepaid or checking account. But unlike mainstream bank accounts, Square Cash explicitly supports the use of cryptocurrencies.

Square Cash, which launched in 2013, had more than 7 million active users at the end of last year, Jack Dorsey, Square's CEO, said during Tuesday's fourth-quarter earnings call. Users spent around $90 million with the Cash Card in December alone.

The company is positioning the Square Cash platform as a gateway to other Square services and products, even though the Square Cash app was designed as a consumer app that was separate from the main Square merchant ecosystem.

The Square Cash app was originally an interface for an email-based P-to-P transfer system. It has since evolved to support commercial uses, and allows users to receive direct deposit payments from employers. The accompanying Cash Card, a Visa debit card, can be used to withdraw funds from ATMs, make purchases and buy or sell bitcoin.

"We are leaning very heavily to this app, and to the really positive patterns we are seeing and don't consider this a peer-to-peer app and then stop," Dorsey said. "We consider it much more in providing financial access to people."

The success of the Square Cash platform allows the company to add complementary services while not straying too far from its original mission, said Thad Peterson, senior analyst with Boston-based Aite Group.

"Square always needs to go back to its core, which is going to be a business-to-consumer play," Peterson said. "Taking the Cash Card in that direction makes a lot of sense, and it ties back to the core value of Square for merchants."

Leaving the Square Cash platform simply as a person-to-person money transfer service would have left Square in "a very challenging place to get any traction," Peterson added. "Especially with the bank-supported Zelle P-to-P in place now."

Square is encouraged by the Cash App's continuing popularity in the iOS app store, and every Friday it notes a significant flurry of activity, Dorsey said.

"We see a bump in terms of sign-ups, downloads and usage," he added. "As persons are getting paid, they are sending money to their friends or receiving money from their family."

Square Cash and the Cash Card are becoming primary spending options for consumers, Dorsey said. After downloading the app, the consumer has "everything they would need from a typical bank," he said.

"This is very powerful, certainly for the individual, and it has potential for [other services] around our business," Dorsey said. "We think there is a lot more opportunity to power and provide more for the seller side and business side of our business, while being a more complete solution for individuals around their finances and financial health."

Square Cash also allows Square to dabble with bitcoin and its own pace. Since confirming last month that it was allowing Square Cash to interact with bitcoin, Square's own stock price has had some significant swings mirroring those of the cryptocurrency's value.

Thus, Dorsey said the company is taking a cautious approach in monitoring and learning how consumers are using Square Cash app or Cash Card to purchase the cryptocurrency. The fact that Square Cash is separate from Square's other products allows Square to use it as a sandbox for bitcoin and other technologies.

"Bitcoin, for us, is not stopping at buying and selling," Dorsey explained. "We do believe that this is a transformational technology for our industry, and we want to learn as quickly as possible."

After delivering a 47% hike in adjusted revenue to $282.7 million in the fourth quarter compared with a year earlier, Square reiterated a vision that has transformed the company into a more of a full-service one-stop shop for merchants of all sizes as well as one offering consumers easy-to-use payment methods. Payment volume rose to $17.9 billion, a 31% increase over the fourth quarter of 2016. The company's net losses remained steady at $16 million.

Square's chief financial officer, Sara Friar, pointed to international growth as a positive trend for the company, as it gets firmer footing and seeks more exposure in Canada, Japan and Australia.

"Every country is different," Friar said. "We put [the tabletop device] Square Stand in the Australian market, so we have more hardware now in that region, and it can be very strong for retailers."

However, Square's launch in Canada did not pick up steam until the company added support for the Interac debit network, Friar noted.

"Frankly, we had half of a product in Canada until the end of 2017 when we added Interac, because half of all transactions in that country are through Interac," she said. "For 2018, we'd like to see Canada really start to show strong growth, now that we have a much more fully featured product."

Square also points to its Caviar food ordering and delivery service as a growing segment of the company.

The addition of food-pickup services from Square has allowed the company to shift its full focus from premium restaurants through Caviar to the fast-casual restaurant segment.

"We want to make sure we are providing a service that any time you are hungry, we want to offer options — and today those options are that the food can be delivered to you, or you can go to the restaurant and pick it up," Dorsey said. "We can imagine going further and enabling dine-in as well."

For reprint and licensing requests for this article, click here.
P-to-P payments Mobile point-of-sale Bitcoin Earnings Jack Dorsey Square