Square was positioned well to capitalize on the pandemic environment and was rewarded with a 300%+ increase in its stock price during 2020. Leading the growth in its performance was the Square Cash App, which saw a huge boost from the depositing and spending of government stimulus checks, with Cash App now boasting a use base of 40 million users. Square’s merchant business also continued to maintain its 29% compound annual revenue growth during the same period.
With a share price increase of just 14% so far this year, Square is continuing to look for new ways to drive value from its core businesses. While Cash App usage overall has declined with the expiration of government COVID-19 stimulus programs, new features like the debit Cash Card have helped to keep the program relevant to consumers, with Cash Card users adding an average of 70% more to their accounts vs. non-card users. The challenge for Square now is to continue to monetize the Cash App user base with a suite of neo-bank products. Square faces strong competition in this segment as competitor PayPal has recently announced a similar strategy and product set designed to meet all of their users’ financial services needs beyond just e-commerce shopping.
Square is working equally hard to expand their service share within their small business user base, enabling Square merchants to accept payments in-store from Cash App users. This added utility has enormous potential to drive usage from consumers, and merchants should welcome the opportunity to accept an alternative payment type that has a lower cost than typical merchant card fees. The recent acquisition of Afterpay also represents significant potential, although Square has not articulated a definitive strategy around that as of yet. Square has been trying to take its merchant offering up market to larger retailers that can make a bigger contribution to top line revenue, and Afterpay may be what they need to drive that.
Overview by Don Apgar, Director, Merchant Services Advisory Practice at Mercator Advisory Group