How Block’s Cash App Makes Money

Cash App is a popular peer-to-peer (P2P) payment service owned by Block, Inc. (SQ) (formerly Square Inc.), a leader in the financial technology industry. Cash App is just one part of Block’s business offerings, which also include software and point-of-sale hardware for businesses of all sizes as well as cryptocurrency services. Since going public in November 2015, the company has quickly grown into one of the largest payment processing companies in the United States and has expanded its business model beyond payment processing to include enterprise offerings such as scheduling, employee management, and business analytics.

Block (Square at the time) launched its Cash App service in 2013 to compete with services like Venmo, Paypal, Apple Pay, and Google Pay. Such peer-to-peer (P2P) payments 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 functionality beyond just a peer-to-peer payment service; users can also receive direct deposit payments and ACH payments, as well as purchase cryptocurrency through the platform. More recently, Cash App introduced an investing feature called Investing that allows users to trade stocks and ETFs commission-free within the application.

Despite intense competition in the peer-to-peer payment industry, the addition of Cash App has been great for Block. The company reported a billion-dollar bump in revenue between 2017 and 2018: from $2.2 billion in 2017 to $3.3 billion in 2018. 2018 was also when Cash App surpassed Venmo in downloads, with 33.5 million cumulative downloads. As of the end of 2021, Cash App boasted 70 million active users and $1.8 billion in gross profit. As of Q1 2022, Block, Inc. has a market capitalization of $78.5 billion.

Cash App’s Business Model

Cash App is free to download and its core functions—making peer-to-peer payments and transferring funds to a bank account—are also free.

Cash App makes money by charging businesses to use their application and by charging individual users transaction fees to access additional services. For instance, instant money withdrawals (instead of the typical 2-3 day transfers, which remain free) cost 0.5%-1.75% of the value transferred out. Sending from a credit card will also be subject to a 3% fee.

Charging Businesses

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

• An individual makes an in-application peer-to-peer payment to a business.
• An individual uses the Cash Card—a Visa prepaid card that users can order and is linked to their in-application balance—to pay a business.

Expedited Transfers and Credit Card Payments

For a 0.5%-1.75% fee, individual users can expedite transfers from their Cash App account to a bank account. Users have the option of transferring their funds into a bank account immediately rather than waiting for the standard deposit time, which is two to three days. Individuals can also use the platform to make personal payments using a credit card, instead of their Cash App balance, for a 3% transaction fee.

Bitcoin Exchange

From the end of 2017, Cash App started allowing users to use their balances to buy and sell bitcoin. While there was no fee for this service when it was first introduced, in late 2019, Cash App began charging users fees of as much as 1.76% on bitcoin purchases. This is one of Cash App’s most profitable services. In addition to the service fee, there is generally a 1% to 4% difference in what bitcoin exchanges and individuals pay for bitcoin. Cash App factors these differences into the prices it offers its users, thereby generating additional revenue on the exchanges it facilitates.

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

The Future of Cash App

In an era where smartphones are ubiquitous and consumers are willing to pay for convenience, people are increasingly relying on digital wallets. Payment-to-payment applications are on the rise, but the competition is intense. Cash App has to compete with PayPal, with its larger market capitalization of $138 billion (as of Q1 2022). Cash App also has smaller competitors, including Apple Pay and Google Pay, which come pre-installed on iPhones and Android phones. In order for Cash App to stand out, it needs to continue to roll out exciting new features that attract new users.

Cash App’s Cash Boost feature was launched in May 2018; it features a series of discounts at coffee shops and chain restaurants, like Chipotle and Subway. These instant cashback offers are available exclusively through Cash App’s Cash Card. The Boost feature aims to keep users using their Cash Cards often. New “boosts” are announced through social media and are added regularly as Square acquires new partnerships with popular brands. 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 Cash App’s growth could challenge Paypal’s Venmo application in the near future. For now, Cash App’s user base stands at 24 million, while Venmo’s user base is approximately 40 million.

When Square was founded in 2009, it started with a product that gave small businesses the capability to accept credit card payments. From there, the company expanded to create an ecosystem of financial technology products that make it possible to manage a business using exclusively Square products. With Cash App, Square is attempting to create a similar financial technology ecosystem for individuals. In the future, the Cash App ecosystem could replace a bank account for an individual.

In April 2018, Cash App launched in the U.K. However, the Cash App card is not available in the U.K. And even though users in both the U.S. and the U.K. have access to Cash App and its features, money cannot be sent between the two countries. While Square’s business-solution products are available internationally in countries such as Canada, Japan, and Australia, the company has not announced when consumers in those countries might gain access to Cash App as well.

On March 18, 2020, the Federal Deposit Insurance Corporation (FDIC) granted Square conditional approval to open a bank. The bank, which is named Square Financial Services, opened in 2021. It will offer small business loans and “deposit products. The bank will be headquartered in Salt Lake City, Utah.