Within the growing Square ecosystem, the Square Cash P-to-P app has always been walled off from the rest of the group. It is the only consumer-facing product Square has left, and signing up for a Square Cash account does not grant entry into the company's broader merchant portfolio.

So it may seem odd at first that Square is using this app as a testbed for bitcoin, when it so limits the potential of bringing digital currency on board. But if Square Cash is ever to distinguish itself from the bigger options in P-to-P — Venmo, PayPal and Zelle — it needs to take risks that Square can't afford with its primary customer base.

Square reader and card
Bloomberg News

Humble beginnings

When Square launched Cash in 2013 as a means of attaching payments to emails, the P-to-P landscape was less cluttered. Much like the original Square card reader, Square Cash's simplicity was its selling point. The app itself did little more than help users compose emails to initiate P-to-P payments.

Four years on, things are entirely different, with numerous P-to-P vendors carving out niches and establishing unique value propositions. Zelle has the backing of large banks, Venmo has the mindshare of millennials, and PayPal has the longest history. Further, P-to-P usage is unlikely to be exclusive — according to Apptopia, 84% of Cash app users are likely to have already installed the Venmo app. Square Cash is likely to be a second choice for sending funds to a recipient who doesn't want to download a dedicated P-to-P app.

Nothing to lose

Given the somewhat vanilla appeal of Square Cash and its self-imposed quarantine from Square’s other products, Square has the opportunity to experiment within the Cash platform without having any direct repercussions for its more mainstream products.

The bitcoin pilot fills this role perfectly.

"We're exploring how Square can make this experience faster and easier, and have rolled out this feature to a small number of Cash app customers,” Square said in an emailed statement. “We believe cryptocurrency can greatly impact the ability of individuals to participate in the global financial system and we're excited to learn more here.”

Square has similarly used Cash in the past to experiment with new approaches to handling payments. In 2015, the company introduced the "$Cashtag," a spin on Twitter hashtags and usernames that also served as a way to allow businesses to accept funds through the Cash ecosystem. The $Cashtag hardly revolutionized digital payments, but as a feature of the Cash app, it also never risked the reputation or performance of Square's primary offerings.

Square's latest effort could have more of an impact. Despite the significant interest in the blockchain technology that enables bitcoin, cryptocurrencies are still viewed by the general public as vehicles for illegal activity.

According to a Turner Little / YouGov survey, 29% of Americans think that cryptocurrencies are used for purchasing illicit goods and services. Further, cryptocurrency exchanges have not had the best reputation — the implosion of Mt. Gox in 2014 being an early example of the volatility and impropriety that have become synonymous with bitcoin. Since then, virtual currency exchanges have been clawing back their reputation, but there is still considerable work to be done. Coinbase, one of the largest exchanges today, saw a surge of complaints to the CFPB, from just six in 2016 to 293 in 2017.

Square Cash therefore has an opportunity to legitimize bitcoin trading to the general public, but that probably isn't Square's only motivation. The company needs a hook for its Cash app, and it may have found one by confronting the lack of trusted, mainstream bitcoin funding options.

The Square Cash user experience design is simple and intuitive, unlike many of the existing trading platforms, and just associating bitcoin with a company that has build physical world presence rather than being purely virtual could go a long way to assuage consumer fears and doubts.

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Nick Holland

Nick Holland

Nick Holland is a Senior Analyst at PaymentsSource. He has previously held analyst roles at Javelin Strategy & Research, Yankee Group and Aite Group.