Square Cash app, card aid growth in a crowded digital field

In the wake of Zelle, Venmo and Apple Cash getting more active users and potential revenue, Square is relying on its Square Cash App and Cash Card as key drivers for its own growth.

In addition to the Cash App and Cash Card building active users and transaction volume in the first quarter of 2019, those products also served as learning tools for the company when launching a debit card for business owners called Square Card, Square CEO Jack Dorsey said Wednesday during the company's earnings call (Dorsey is also CEO of Twitter).

"We found out early in our pilot on Square Card that over 40% of our sellers did not previously have a business debit card, so they were actually mixing their business funds for their shop with personal funds," Dorsey said. "So the new debit card allows them to segment those funds."

David Paul Morris/Bloomberg

Based on the interest shown by sellers early in process, Dorsey called the new debit card for Square sellers one of the most successful launches the company has had. The card also represents another warning shot to banks because it offered something very different than a conventional bank account: Sellers using Square POS products can keep their funds without having to transfer them to a bank, and can spend the money through the Mastercard debit card.

Meanwhile, the Square Cash App has continued its repositioning as a tool for small-business owners to make payments to vendors or employees, as opposed to its original intention as more of a consumer-facing P2P app.

Square Cash app volume grew nearly 2.5 times in the first quarter compared to Q1 last year, said Square chief financial officer Amrita Ahuja.

"This highlights continued growth in terms of reach and engagement on the platform," Ahuja said.

Square saw growth on Cash app rise to 15 million active users by the end of 2018, a 100% increase from the previous year, Ahuja added. Though she did not share first quarter numbers for 2019, Ahuja indicated the growth pattern remains similar to last year for the Cash app.

While reporting a net loss of $38 million for the quarter, Square did deliver net revenue of $959 million, a 43% increase over the first quarter of 2018; and gross payment volume of $22.6 billion, a 27% bump up year over year.

Part of the net loss was related to a reported $14 million loss on the valuation of the company's Eventbrite investment.

Transaction-based revenue was $657 million in the quarter, up 26% from a year earlier, resulting in transaction-based volume profit of $248 million, a 27% uptick.

The Square Online Store, the Square Invoices mobile app, and the launch of Square Reader and Square Stand in the Japanese market were cited as key achievements in the first quarter of 2019.

Dorsey seemed most bullish on Square's potential for growth in Japan, calling the Square Reader and Square Stand launch in that country "a huge upgrade for the (Square) readers in that market."

Its investment and attention to Japan is also a case of good timing for Square.

"We do see a lot of tailwinds in Japan, especially with the government incentivizing both consumers and merchants to turn to digital and away from cash," Dorsey said. "So, we are pretty pleased with that."

Plus, the cooperation the company still has with Sumitomo Mitsui Card Corp. in Japan makes it easy for sellers to obtain readers and services through SMCC branches, Dorsey said.

Dorsey acknowledged he has watched the recent mergers in the payments industry closely, but felt most were completed in "a fairly typical pattern that address only part of the equation."

Rather than view a possible consolidation or acquisition for the purpose of obtaining more revenue or a new customer database, Dorsey said he prefers to view it from the standpoint of expanding on the Square ecosystem.

"If we determine that new teams or new products would help our ecosystem or add a potential new solution that a seller is facing in a critical way or an individual with Cash App is facing, we would acquire it," Dorsey said.

Square is constantly looking at startups to evaluate the quality of teams and products, Dorsey said. "We want to buy technology and that is what we focus on," he added.

Unlike past discussions with investors, Dorsey did not elaborate on the attention the company continues to get regarding its attempts to get federal approval as a Utah industrial loan company, though it remains to be seen how far Square will get in this endeavor.

The ILC bid was just one of many indications that Square was dabbling with banking services over the past few years, including its Square Capital credit program for small businesses, its prepaid card and Square Cash P2P options, and various mobile wallet models.

In addition to the political scrutiny he faces with his other company, Twitter, Dorsey also has had to operate Square while enduring some key leadership moves as chief financial officer Sarah Friar left the company and head of payments Mary Kay Bowman left in January for Visa.