How Square’s Cash App makes money

Cash App is a peer-to-peer (P2P) payment service owned by Square Inc. (SQ), a leader in the financial technology industry. Cash App is just a part of Square’s business products, which also includes software and point-of-sale hardware suitable for businesses of all sizes. Since going public in November 2015, Square has rapidly grown into one of the largest payment processing companies in the United States and expanded its business model beyond payment processing, including scheduling, employee management, and business analysis.

Square launched the Cash App service in 2013 to compete with services such as Venmo (owned by Paypal), Apple Pay, and Google Pay. Peer-to-peer payment services allow consumers to use their smartphones to pay for goods and services, pay bills, and transfer money to friends and family. Cash App has expanded its functions beyond peer-to-peer payment services; users can also receive direct deposit payments and ACH payments through the platform, as well as purchase bitcoin cryptocurrency. Recently, Cash App introduced a new feature called investment. This product allows users to trade stocks without commission within the app.

Key points

  • Cash App is a peer-to-peer (P2P) payment service owned by Square Inc., a leader in the financial technology industry.
  • Cash App has expanded its functions beyond peer-to-peer payment services; users can also receive direct deposit payments and ACH payments through the platform, as well as purchase bitcoin cryptocurrency and trade stocks.
  • Cash App makes money by charging businesses for the use of its applications and by charging individual users for transaction fees to access other services.

Despite the fierce competition in the peer-to-peer payment industry, the addition of Cash App is a good thing for Square. The company reported that revenue from 2017 to 2018 increased by US$1 billion: from US$2.2 billion in 2017 to US$3.3 billion in 2018. 2018 was also the year when Cash App surpassed Venmo in downloads, with a cumulative download of 33.5 million. In December 2019, Cash App had 24 million active customers, a year-on-year increase of 60%.

As of March 17, 2020, Square’s market value was $19.47 billion.

Cash App’s business model

The Cash App is free to download, and its core functions-making peer-to-peer payments and transferring funds to bank accounts-are also free. Cash App makes money by charging businesses for the use of its applications and by charging individual users for transaction fees to access other services.

Charging business

Cash App charges 2.75% per transaction to businesses that accept Cash App payments. These payments can be made in two ways:

  • Individuals make in-app peer-to-peer payments to businesses.
  • Individuals use cash cards (a Visa prepaid card that users can order and link to the balance in their application) to pay corporate expenses.

Expedited transfer and credit card payment

By paying a fee of 1.5%, individual users can speed up the transfer from their Cash App account to their bank account. Instead of waiting for the standard deposit time of two to three days, users can choose to transfer funds to a bank account immediately. Individuals can also use the platform to make personal payments with a credit card instead of using their Cash App balance to pay a 3% transaction fee.

Bitcoin exchange

At the end of 2017, Cash App began to allow users to use their balance to buy and sell Bitcoin. Although this service was free when it was first launched, at the end of 2019, Cash App began to charge users up to 1.76% of bitcoin purchase fees. This is one of the most profitable services of Cash App. In addition to service fees, there is usually a 1% to 4% difference in fees paid by Bitcoin exchanges and individuals for Bitcoin. Cash App incorporates these differences into the prices it offers to users, thereby generating additional revenue in the transactions it promotes.

For example, the Cash App might buy Bitcoin from one user for $9,900, and then sell it to another user for $10,000, thereby earning $100 in revenue. Cash App calculates this price difference based on fluctuations in the value of Bitcoin.

The future of cash applications

In an era when smartphones are ubiquitous and consumers are willing to pay for convenience, people increasingly rely on digital wallets. Pay-to-pay applications are on the rise, but competition is also fierce. Cash App must compete with PayPal, which has a market value of up to $114.8 billion (as of March 17, 2020). Cash App also has smaller competitors, including Apple Pay and Google Pay, which are pre-installed on iPhone and Android phones. In order for Cash App to stand out, it needs to continue to introduce exciting new features that attract new users.

The Cash Boost feature of Cash App was launched in May 2018; it offers a series of discounts in coffee shops and chain restaurants such as Chipotle and Subway. These instant cashback offers can only be obtained through the Cash Card of the Cash App. The Boost function is designed to allow users to use their cash cards frequently. As Square establishes new partnerships with popular brands, new “lifts” are announced via social media and added regularly. In January 2019, Square launched a similar free debit card for businesses called Square Card.

In the third quarter of 2019, Cash App accounted for more than 25% of Square’s revenue. Some experts predict that the growth of Cash App may challenge Paypal’s Venmo application in the near future. Currently, the user base of Cash App is 24 million, while the user base of Venmo is about 40 million.

When Square was founded in 2009, it started with a product that allowed small businesses to accept credit card payments. Since then, the company has expanded to create an ecosystem of financial technology products so that it can manage the business using only Square products. Through Cash App, Square is trying to create a similar financial technology ecosystem for individuals. In the future, the Cash App ecosystem can replace personal bank accounts.

In April 2018, the Cash App was launched in the UK. However, the Cash App card is not available in the UK. Even though users in the US and the UK can use the Cash App and its functions, it is not possible to send money between the two countries. Although Square’s commercial solutions are in Countries/regions such as Canada, Japan, and Australia are available worldwide, but the company has not announced when consumers in these countries/regions will also be able to use the Cash App.

On March 18, 2020, the Federal Deposit Insurance Corporation (FDIC) granted Square conditional approval to open a bank. The bank called Square Financial Services will open in 2021. It will provide small business loans and “deposit products.” The bank’s headquarters will be located in Salt Lake City, Utah.

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