Square's Changes to Cash App Cement Its New Strategy

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The design of Square Cash's new "$Cashtag" system may seem like a cutesy move to appeal to more consumers, but the underlying changes to the app show that Square's new focus is all business.

Following last week's removal of Square Order (the latest in a series of discontinued consumer apps that included Square Wallet, Pay with Square and Card Case), the only consumer-facing app left in Square's inventory was Square Cash, a P2P app. Continuing this pattern of downplaying or removing consumer services to place more emphasis on business, Square added a merchant payment capability to Cash, transforming its underlying use case.

The old system identified recipients by phone number or email address, a method that was perhaps convenient to consumers but a bit too cumbersome for businesses that are better known by a succinct brand name. The new Square Cash allows users to create $Cashtag identifiers to include in ads, business cards and other interactions where the user solicits a payment. And this may have been the company's plan for Square Cash all along.

"They expected the consumer business to be a loss leader all the way from the start," said Richard Oglesby, senior analyst at Double Diamond Payments Research. "They were never charging for Square Cash or expecting to make money on it."

Square Cash remains debit-only, as opposed to Square Register, which accepts debit and credit cards. The trade-off is a lower fee; Square charges 1.5% per merchant transaction through Square Cash (there is no fee for consumer P2P use), compared to the 2.75% fee attached to Square Register.

The company has steadily built out Square Register as a system for larger merchants with more complex needs. With Square Cash, Square has created a more limited (and thus cheaper) product for the smallest merchants (artists, flea market sellers, etc.) that were originally drawn to its off-the-shelf mobile card reader.

"What they are doing is taking a multi-step process and making it one easy step," said Gil Luria, analyst with Los Angeles-based Wedbush Securities. "Like anything else Square does, the product design is very impressive and user interface is very easy."

Square did not provide an interview prior to deadline.

The expansion of Square Cash makes more sense than some of Square's past strategies regarding payment apps, Luria added.

Merchant Square accounts are separate from Square Cash accounts, but "they are taking the little bit of install base they have from Square Cash and now adding a benefit or usage group for those types of customers," he said.

Over time, Square will have to determine how big the potential market is for Square Cash business payments and how it can connect that with their mobile card reader business, Luria said.

Also, Square unveiled the new Square Cash less than a week after Facebook announced a similar P2P function is coming to its Facebook Messenger app.

Square Cash was originally designed as an email-based P2P system, with the earliest version of the service's mobile app built as a way to pre-fill the user's email with payment instructions. Over time, Square has fleshed out the app's capabilities.

Though there is no true social networking feature in the Square Cash app, the $Cashtag branding is reminiscent of the #hashtags used on Twitter and other social websites. Square Cash is also the underlying technology of the social photo-sharing app Snapchat's recently introduced Snapcash feature. And PayPal's Venmo built its own app to look more like Twitter than a mobile payment application.

Square is joining the conversion of payments and social media to boost the audience for Square Cash.

"A lot of businesses use Twitter or Facebook to communicate to their customers and they would love for those customers to be able to send money and complete a transaction in the same manner," Oglesby said.

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Technology P-to-P payments