Is Your Money Insured Through Square Cash

Square'due south (SQ 5.49%) Cash App has been on a tear recently. Invented as a competitor to PayPal'due south (PYPL 0.82%) Venmo, it lets users instantly transport money directly to people or businesses without using physical cash. The app has been growing chop-chop, but in the face of stiff competition, what keeps people from defecting to 1 of the Cash App's rivals? Three key features seem to help the Cash App hold on to its users.

Paradigm source: Square.

The Cash Carte

The Cash Card is a Visa (V i.69%) debit card users tin can get for free. It acts just like a regular bill of fare, except that instead of being connected to a bank, it is connected to a Cash App account. Cash Card users can spend coin anywhere Visa is accustomed, which is almost any merchant nowadays.

The large differentiator for the Cash Card, and why over seven meg people use it each month, is the boost part. Boosts are credit card-like greenbacks-back incentives that instantly pay someone if they employ the Cash Menu at partner locations. For example, DoorDash users become x% off any guild paid for with the Cash Card.

Image source: Foursquare investor letter.

Foursquare makes money on the Cash Menu past taking two.75% of every purchase from merchants. This is no dissimilar than a traditional debit bill of fare, only it's important for investors to understand how Foursquare has started to monetize its users.

Bitcoin and investing

Cash App users tin can purchase bitcoin and invest in partial shares of blue-fleck stocks with idle money in their accounts. This isn't a game-changer, and the visitor won't be competing with large-proper name brokerages for deposits anytime soon, but it is a keen way to concenter new users and increment activity. If the $875 million in bitcoin-related revenue the app generated terminal quarter is any indication, users love the characteristic.

Square said in its latest earnings written report that Greenbacks App users who were active on ii or more products (including bitcoin, investing, the Cash Card, and direct deposit) generated three times as much revenue as someone who just used peer-to-peer payments. This means that while the bitcoin and investing features may non directly generate cash for Square (at least correct now), they can indirectly lead to a college ARPU number. Information technology also makes the product stickier by giving users more reasons to rely on it for their personal finance needs.

Information technology acts similar a banking concern

Foursquare does not currently have the blessing to run an FDIC-insured depository financial institution for individuals. To bypass this, it partnered with privately held Sutton Banking concern to provide routing and account numbers, then that people can get direct deposits to their Greenbacks App accounts.

This puts the app closer to par with traditional banks. Anyone who uses the Greenbacks App can spend (Greenbacks Card), send (P2P payments), grow (bitcoin and investing), and receive (direct deposit) their money, all in ane identify. Information technology has an advantage over other P2P apps and traditional banks because it is the first app to combine every personal finance need in i place, reducing friction and adding convenience for users.

The just reward a traditional banking concern has over the Cash App is its ability to pay out involvement on deposits. If Foursquare applies and gets blessing to provide FDIC-insured cyberbanking to Cash App users (don't await this to happen anytime soon), it will be able to pay interest and compete on an equal playing field with any legacy offering.

Even though Square has been killing it with the Cash App, the competition is even so formidable. Venmo has 52 one thousand thousand users and PayPal (PYPL 0.82%), its parent visitor, just announced information technology volition be letting its 346 million users buy, spend, and agree cryptocurrencies. Apple'southward Apple tree Pay has get popular, and the large banks are investing heavily in smartphone apps also.

Withal, with its ability to innovate and provide a better value proposition to its users, the Greenbacks App has been able to abound users at a lx% charge per unit vs. Venmo at l%. The app currently has 30 million monthly agile users (MAUs) and has more than doubled its average revenue per user (ARPU) since 2017. Last quarter, it generated $281 1000000 in gross profit (revenue-the cost of appurtenances sold), up 167% from Q2 2019.

If it continues to grow this number at triple-digit or high double-digit levels for the side by side few years, the app could add a lot of value to Foursquare's business organisation. Call up, past functioning does not guarantee the Greenbacks App volition continue to abound at this blistering step. But if Square continues to introduce with the production, it could end upward being quite the benefaction for shareholders.

Source: https://www.fool.com/investing/2020/10/27/3-reasons-users-love-squares-cash-app/

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