Cash App, the peer-to-peer mobile money transfer service owned by Square, has been a primary driver of Square’s growth this year. The app is responsible for approximately 70% of Square’s revenue in the third quarter of 2020. The lockdowns and increased unemployment brought about by the pandemic is partially responsible for the surge in the popularity of digital wallet apps.
What Cash App Does
Cash App enables users to instantaneously send and receive money as well as save and invest on its platform. Once users create a free account, they pick a unique username called a “$cashtag”. By linking an existing bank account to their account, users can seamlessly transfer funds between the two accounts.
The platform also offers a number of investment capabilities located on the same app. Users can engage in commission-free stock trading and can buy fractional shares of a company’s stock using the “Cash App Investing” function. The app currently does not support the trading of mutual funds, stock options or bonds. It might expand its investment offerings in the future. The app also does not support margin trading. You must actually have the funds in your account to purchase stocks and may not use borrowed funds to buy shares. As of January 2018, users can also convert dollars into bitcoin in order to invest in bitcoin. Unlike the commission-free nature of stock trading, the app may charge a fee when buying or selling bitcoin.
Major Driver of Growth for Square
Revenues stemming from Cash App’s bitcoin trading business have been a major driver of growth for the company. In the third quarter of 2020, the app generated more than $1.63 billion in bitcoin revenue. This represents an increase of more than 1,000% over the same period last year. Cash App’s total revenue in Q3 was $2.07 billion. This means that the revenue generated from the app’s bitcoin segment accounted for 80% of the app’s total revenue figure.
Cash App has many similarities to Venmo and PayPal. Like rival payment platforms, it makes money by charging fees on certain money transfer activity. Cash App charges a 1.5% fee for instant transfers. Like its competitors, the app also facilitates sending and receiving money for free. The exception is that the app charges a 3% per transaction fee when the linked account is a credit card.
Cash App Distinguished from Other Mobile Payment Platforms
The key feature that distinguishes the Square-owned mobile payments platform from similar online payments platforms is the Cash Card. The Cash Card is a free debit card that connects directly to the app’s balance. Certified by Visa, it can be used both online and at brick-and-mortar retail locations. It is also compatible with Apple Pay and Google Pay.
The Cash App for Business product allows small businesses to accept payments from customers using the app in exchange for a minor fee to the company. The app has seen an uptick in payment volume. The Cash App for Business product has been especially useful for smaller-scale businesses that can’t afford to invest in a sophisticated POS system. However, payments in this form are limited to $1,000 per month, so many businesses opt to upgrade to Square’s advanced POS system.
Square’s Stock Price Rising
Square Inc., the digital payments processing company Jack Dorsey founded in 2009, has seen its stock price surge over 180% in 2020 alone. Square currently has a market capitalization of approximately $86 million. Cash App, with an estimated valuation well over $40 billion, represents a sizable portion of Square’s total valuation. Square’s co-founder and CEO, Jack Dorsey is also the co-founder and CEO of Twitter.
The government’s stimulus packages in response to the pandemic have undoubtedly been a driver of the app’s growth in 2020. The CARES Act sent stimulus payments to over 165 million Americans. That caused an increased inflow of funds into digital wallets and peer-to-peer transfers. Square’s CFO Amrita Ahuja commented: “As customers are pulling more funds into Cash App, that drives further engagement and network effects, and they’re able to send money to others through peer-to-peer, spend their funds through Cash Card, invest in stocks and more.”
Hip Hop Artists and Influencers for Cash App
In addition to pandemic factors, hip hop artists and influencers have fueled the rapid growth of Cash App. By using the platform to engage with fans, rappers have interestingly played a pivotal role in growing the number of monthly active users and building a loyal userbase. According to music database Genius, the app has been mentioned in the rap lyrics of about 200 hip hop artists. In January 2020, Cardi B and Megan Thee Stallion teamed up with Cash App to give away a total of $1 million to 2,000 random selected Twitter users that tweeted a specific hashtag. Such actions have helped the money transfer app engage with a broader userbase.
Analysts remain optimistic that the app can maintain its upward growth trajectory going into 2021 and beyond. Square’s Cash App has meaningfully expanded its userbase and attracted increased usage of its investing services in 2020, positioning itself for further future success.