How does Square’s Cash App make money?

Cash App is a peer-to-peer payment service from Square Inc., one of the leaders in the financial technology industry. It could be said that Cash App is only a small part of what this great company offers, which also works in the development of point of sale (or POS) software and hardware for large, small and medium-sized companies. Here we will show you how Cash App generates money and what its future prospects are.

Square launched the Cash App in 2013 to compete with services like Venmo (owned by PayPal), Apple Pay and Google Pay. The P2P (peer-to-peer) payment service allows users to use their phones to pay for goods and services and bills, as well as transfer money to friends and family.

Nevertheless, Cash App has expanded its functionality beyond a simple P2P payment service, as now users can also receive direct deposits and ACH payments, as well as buy Bitcoin and other cryptocurrencies through the platform.

Recently, Cash App added a new feature called Investing -o Inversión, in English. This product allows users invest in the stock market without commissions, at least as long as the operations are carried out within the platform.

What is the business model of Cash App?

Since he started his company in the month of November 2015, Square has quickly grown to become one of the largest payment processing companies in the United States., managing to expand its business model beyond its original function to also include payment scheduling, employee and payroll administration, and commercial business analytics.

Despite the intense competition in the P2P payment industry, the value of the Cash App has been incredible for Square. The company reports a growth that exceeds one billion dollars in earnings between 2017 and 2018, going from $2.2 billion in 2017 to $3.3 billion in 2018.

The year 2018 was also when Cash App surpassed Venmo’s numbers reaching the record of 33.5 million cumulative downloads. In December 2019, Cash App already had 24 million active customers, which shows that had a growth of 60% in just one year.

Note: To give you an idea of ​​its success, on March 17, 2020, Square declared a market capitalization of $19.47 billion.

The download of Cash App is completely free and its main functions are also free, that is, making P2P payments and transferring the funds obtained to a bank account. So how does Cash App make money? Well, charging businesses for the use of its application and also applying certain fees to individual users for access to additional services in its catalog.

Let’s talk about charging companies

Cash App charges businesses that accept its P2P payment services. How much is this charge? We are talking about 2.75% of the cost of the transaction. Now, these payments can be collected by two types of transactions:

  • When an individual makes an in-app peer-to-peer payment to a business.
  • When an individual uses the Cash Card – a prepaid Visa card that any user can order and that is linked to the balance of the application – to pay a company.

Transfers and credit card payments

For a 1.5% commission on the transaction amount, users can make expedited transfers from the Cash App account to their bank account.

Here, people have the option of transferring their funds to their preferred account immediately, rather than waiting the standard time, which typically ranges from two to three business days.

It is also important that you know that Cash App users can use the platform to make personal payments to your credit card using the balance they have in the app. If you decide to do this, you will have to pay a 3% fee.

It also works as a Bitcoin Exchange

At the end of 2017, Cash App began allowing the use of your balances for the buy and sell bitcoins. Although the collection of a special commission was not implemented when this function was launched on the market, in the last months of 2019 Cash App began charging commissions to its customers. These charges represent 1.76% of the transaction amount. Still, this is still one of the most profitable services on the app.

Yes indeed. You must take into account that, in addition to making this payment, generally there is a difference that varies between 1% and 4% between the purchase price and the sale price of the cryptocurrency, which earns you extra cash for Cash App. For example, in Cash App you can buy Bitcoins from a user for $9,900 and sell them to another person for $10,000, making a profit of $100.

Note: Cash App calculates this price difference based on the fluctuation of Bitcoin in the market.

What is the future of Cash App?

In an age where smartphones are virtually indispensable (and in an age where consumers are willing to pay for the convenience), people are increasingly relying on digital wallets and fintech companies like these. In fact, it cannot be denied that payment applications are growing more and more every day, but this has also made the competition fierce and relentless.. For example, Cash App has to compete with PayPal, a relatively similar company with a huge market capitalization. To give you an idea, we are talking about a figure that amounts to $114.8 billion (for March 2020).

But nevertheless, Cash App also has smaller competitors, including of course the famous Apple Pay and Google Pay.; applications that come pre-installed on iOS and Android mobile phones, respectively. In order for Cash App to stand out in this market, it will have to continue to develop new features and attractive usage options that continue to fascinate users.

Cash Boost

We could say that one of these features would be Cash Boost, an alternative launched in May 2018. Through it, you can get multiple discounts at various coffee shops and restaurant chains, such as Chipotle or Subway. These offers are only available if the purchase is made with the Cash App card, that is, with the Cash Card. With Boost, Cash App motivates users to use their Cash Cards more often.

New Cash App Boosts are announced through its social networks and then added regularly as Square continues to partner with the most popular brands and companies in the country and the world. This has also allowed Square to launch in the month of January 2019 a debit card similar to the Cash Card, but for companies.

Cash App within the Square ecosystem

In the third quarter of 2019, the Cash App had already generated more than 25% of the profits of Square, the parent company. Some experts predict that the Cash App is so successful that it could even challenge PayPal’s Venmo app in the near future. For now, Cash App’s user base remains close to 24 million, while Venmo’s stands at 40 million. So, arguably, there is still a long way to go.

Square’s strength seems incredible. And it is that the company was only founded in 2009. That year it began in the market with a product that gave companies the ability to accept payments with credit cards. Since then, the company has expanded to create an ecosystem of fintech-related products that allow any business to run using only Square’s catalog services. With the Cash App, Square is looking to create a financial technology ecosystem for the individual consumer.. Due to its functionality, it is possible that in the future this platform will replace the personal bank accounts offered by traditional banking.

The expansion of Cash App and Square

In April 2018, the Cash App launched in the UK as well. However, the Cash Card is not yet available. Also, even though users in this region have access to the app and its features, they are still not allowed to send money between peers. Another factor to highlight is that, although its financial products are available in countries such as Canada, Japan and Australia; the company has not yet announced when consumers in those countries will be able to access the Cash App platform.

On March 18, 2020, the FDIC (Federal Deposit Insurance Corporation) gave Square conditional approval to open a bank. The bank, called Square Financial Services, will begin operations in 2021 and will have its main offices in Salt Lake City, Utah. Without a doubt, this will open the doors to the granting of small business loans and other deposit products.

In short, how does Square’s Cash App make money?

Cash App is a peer-to-peer (P2P) payment service which is owned by Square Inc., one of the biggest – and most lucrative – leaders in the new fintech industry. This application has exceeded the expectations of users, adding more functionalities to that of a simple peer-to-peer payment service. With the Cash App, consumers can also receive ACH transfers and buy Bitcoins or other cryptocurrencies. Additionally, the platform also has investment options.

The Cash App makes money by charging businesses to use their app. In other words, it is financed through the fees and commissions it charges platform users to access its additional services.

Keep reading: