Square's Cash App is suddenly very much like a bank account — for the bitcoin crowd

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The Square Cash App P-to-P service has come a long way from its roots as a bare-bones money transfer system meant to be used over email. The unexpected addition of direct deposit makes it much more viable as a bank account alternative.

Pairing this new feature with the app’s recent support for bitcoin transfers makes it even more practical as a way to get money into and out of the cryptocurrency ecosystem. Despite the rising popularity of bitcoin and its peers, the average bank account customer still has few ways to buy into the crypto craze.

The setup also brings the Cash App system very close to being able to support the practice of paying salaries in is cryptocurrency. While employers probably won't buy into that idea, it’s very much a part of Square’s marketing: "You can even buy BTC with your paycheck if you 'wanna,'" Square tweeted Wednesday evening, also advertising the more mundane practice of ATM withdrawals.
It’s also an appeal to the unbanked. The Cash App supports bringing money into the platform by linking a debit card, and the direct deposit feature expands the app’s usefulness to consumers who do not want or cannot get a checking account.

Many Cash App customers have been previously underserved by the traditional financial system and do not have access to services that give them an easy way to deposit and access their money, said a Square spokesperson in an email. "As Cash App is increasingly becoming the personal finance tool of choice for many individuals, with Direct Deposit capabilities, the Cash app and the Cash Card now provide even more flexibility in the ways customers can deposit, send, and spend money."

It's a play to diversify Square's Cash App, Square's sole consumer-direct service, which has been getting a lot more attention recently.

In just the past few months the Cash App has become Square's sandbox to build new features in a relatively low-risk environment, and touted as a way to reach underbanked communities.

All of these moves are an attempt to distinguish the Cash App from PayPal's Venmo and the bank-led P-to-P network Zelle.

By aggressively pursuing salary payments, the Cash App is positioning itself as a tool for the gig economy, which is not an aggressively targeted market for other P-to-P apps. Square offers a dedicated payroll service for small businesses, as does PayPal, but newer P-to-P rivals do not aggressively market payroll as an option.

Since Zelle works directly with a user's checking account, it could support payroll, said Rick Oglesby, the president of AZ Payments Group, which would make the bank-led service a potential rival to Square Cash's ACH deposit function.

"When you obtain direct deposit from a consumer, you gain big commitment from that consumer," Oglesby said. "At that point, you’re the consumer’s primary financial services provider. It’s not that hard to offer, but it is hard to get that level of commitment from consumers. If Square can gain significant traction in direct deposit adoption, it can become a serious competitor to checking accounts."

The sharing, or “gig,” economy totally changes the traditional twice-monthly payroll structure. That's a lure for myriad technology companies to take on the geographic, tax, regulatory, currency and disbursement challenges. As such, the sector has become a favored category for technology investors.

Companies like Wirecard are offering prepaid services for contract workers, while Tipalti focuses on large globally dispersed workforces. Stripe has collaborated with the card networks on faster payments for contract workers, though it recently announced plans to drop support for bitcoin payments, abandoning that market as Square moves in.

"It’s interesting that Square's Cash App is moving to payroll," said Talie Baker, a senior analyst at Aite Group. "I would assume it is to capitalize on the booming gig economy for 1099 employees and to offer a less expensive way for small businesses that already use the Square platform to pay their employees. That's pretty cool."

Like all P-to-P providers, including bank systems such as ABN Amro and Canada's Interac debit system, Square is under pressure to make it's P-to-P app do more than transfers, since P-to-P is generally regarded as a jumping off point for more robust services.

"I would say that all P-to-P services are looking for additional use cases," Baker said, noting PayPal is trying to make Venmo accepted everywhere PayPal is accepted, and Venmo is can be used for retail purchases already. Zelle is also used for B-to-C disbursements, Baker said.

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P-to-P payments Payroll payments Square Venmo Zelle