Cash App is Going to be Huge for Square
If you are an investor in Square like me, you know that the Cash App is a big deal. The peer-to-peer (P2P) payments app is growing tremendously fast and is now bringing in meaningful revenue for the company. In fact, the platform just hit a $500 million revenue run rate, and now makes up more than half of Square’s services revenue.
So what exactly is the Cash App? Like Venmo (the P2P app owned by PayPal), you can send money instantly and for free to any of your friends. However, unlike Venmo, with the Cash App you can also:
Get direct deposit from your bank
Pay merchants with the free Cash Card, a debit card that offers 10% off DoorDash and other boosts
The semi-famous boosts (a fancy name for permanent discounts) from the Cash Card is what made me sign-up for the app and start using the service. So far I’ve found it to be very easy and a real money saver.
The Cash App is riding some extraordinary momentum at the moment. Let’s go through some reasons why that has occurred, and why I think it will eventually be a $10 billion business for Square.
Cash App is Relevant, both Financially and Culturally
According to analyst estimates, the Cash App has been downloaded 59.8 million times while Venmo has only been downloaded 52.7 million times. In July alone, 2.4 million users (including myself, actually) added the app. The app store rankings hold up as well. Cash App has been the #1 finance app for the better part of two years, beating-out Venmo, PayPal, and Zelle (the big bank P2P app).
Google Trends, something all investors should take advantage of (purest dataset ever invented), looks fantastic for the Cash App:
Less than five years ago Venmo dominated the Cash App in search relevancy. Today they are seeing around the same number of search queries. I don’t know if I am more excited about what the Cash App has done or shocked that PayPal gave up such a commanding lead. I guess network effects aren’t everything.
Now, to what investors really care about: sales.
In their second-quarter shareholder letter, Square disclosed that the Cash App brought in $260 million in revenue, $135 million if you exclude Bitcoin. That is up from only $1 million in the second quarter of 2016, a 400% compound-annual-growth-rate (albeit from a small base) over the last three years.
So How Did they Do it?
Here is what I believe Square’s marketing strategy for the Cash App was: develop advertising partnerships with influential brands, with little regard to spending. Users are invaluable, so spending tons of money to acquire them will be worth it profit-wise in the long-run.
The Cash App has signed deals with two of the top podcasts, namely, Pardon My Take and the Joe Rogan Experience. They’ve also done multiple deals with rappers who have given money to fans on the app, a very creative way to get people to download.
From my brief research, it looks like there are three reasons the Cash App is beating Venmo: better functionality, innovative/heavier marketing spend, and the Cash Card. But the Cash App can be more than a better Venmo. I think Square has a $10 billion platform on their hands, one that will reinvent personal finance for many Americans.
Cash App: Your Personal Finance Hub
The world (thanks in no small-part to Square) is headed to becoming a predominantly cashless society. Consumers want easy-to-use, mobile-friendly platforms, and could really give a shit about traditional banking branches and ATMs (speaking anecdotally on that last one). Big banks have been feeling the heat from this, which is why they decided to band together and build Zelle (still paying less than 0.25% interest on my checking account, but whatever).
Square, more than maybe any other company, knows what people under-30 do with their money. I believe they are going to leverage this expertise along with their current assets and make the Cash App an all-encompassing banking/payments hub. They already have the payments tech, users, and application built. All that’s left is for them to get regulatory approval, which they applied for in late 2018.
I mean, just read this quote by Jack Dorsey and tell me they aren’t coming out with a banking feature soon:
“They store money with us, it’s accepted anywhere Visa is accepted. They can send and receive money from friends and family,”
He also mentioned on an earnings call that people use Cash App “fundamentally” like they would a bank. I personally use the Cash Card for anything I can get a boost for, and would love moving all my personal finances over to the app. I guarantee they would pay a better interest rate than most of the big banks too (looking at you, Bank of America). Plus, you can pay for stuff with Bitcoin, if that tickles your fancy.
Don’t underestimate how big banking would be for Square’s merchants either. SMBs would love to store money with the same company that processes their payments and gives them loans.
Square (and probably PayPal too) offering a robust banking product will be one of the final nails in the coffin for the big banks, making it easy for consumers to say goodbye for good. This opportunity cannot be understated. It is worth tens-of-billions in market capitalization, maybe even $100 billion, and I think Square can capture a good portion of it.
Disclosure: The author is not a financial adviser, and may have an interest in the companies discussed