Cash App Delivers for Square in a Tough Year for Merchant Processing

In a year in which a fearsomely spreading virus has shut down many businesses and wrecked some, merchant-services provider Square Inc. has had to lean more heavily than ever on the other part of its business—the 7-year-old peer-to-peer payment service Cash App. And in the quarter ended Sept. 30, Cash App delivered, accounting for about two-thirds of the company’s $3.03 billion in revenue.

In this segment of Square’s business, “we see compelling opportunities to invest further,” noted chief financial officer Amrita Ahuja in a conference call late Thursday to discuss the company’s third-quarter results.

Accounting for about three-quarters of that Cash App revenue is Square’s trading facility for Bitcoin. Square’s chief executive, Jack Dorsey, was an early advocate of the digital currency, and the trading revenue for it has ballooned 11-fold over the past year. About a year, ago, Square added to the Bitcoin facility a brokerage feature that allows users to buy fractional shares of stock.

Still, Square’s $1.63 billion in Bitcoin revenue for the quarter was nearly erased by some $1.6 billion in Bitcoin-related trading costs.

Square did not update the number of monthly active users of Cash App (formerly known as Square Cash), which stood at 24 million at the end of last year, but some of these are Square sellers that use the app to hawk items and accept payments without having to touch cards or cash. This volume grew 332% year-over-year to $2.9 billion, Square officials said on the call.

A companion product for sellers, the Mastercard-branded Square card, claimed some 7 million active users as of the end of June, Ahuja said. Meanwhile, volume on the card has grown fast over the past two years to $250 million. “We think there’s more to do here,” Ahuja said of the debit card, which is backed by merchants’ Square receipts. “We’re seeing sellers using the card for everyday transactions,” added Dorsey. “We’re excited about its performance.”

All told, Cash App users are getting more active. Those who use the app every day have grown from 15% of the total to 23% over the past year, according to figures Square released Thursday. This is in part because of the apparent popularity of the stock-brokerage feature. Some 2.5 million users have bought shares using the feature since its introduction, the fastest adoption Square has seen for any Cash App service.

Square’s other business, equipping small merchants with payment devices and processing their transactions, may have been overshadowed lately by Cash App but still generated $965.3 million in revenue for the quarter, up 5% year-over-year. This figure includes $21.8 million in hardware sales, down 20% during a challenging year at the physical point of sale.

Dorsey made it plain that Square is not averse to growth via acquisitions, particularly in fields such as artificial intelligence and cryptocurrency. The personnel that come with such deals are a big part of the attraction, he said, adding, “We’re looking for great teams that complement products like Cash App, and not just in the United States.”