How Square's Cash App Makes Money (SQ)

As a part of its growing clout in the financial technology, or fintech, industry, Square Inc. (NYSE: SQ) launched a peer-to-peer (P2P) payment service in 2013 called Cash App. P2P payment apps allow consumers to pay for goods and services, pay bills, and transfer money to friends and family, all from the convenience of their smartphones.

Cash App is free for individuals to download and use to send, request, or receive money, which leaves many people wondering how Square makes money from it. The answer: through fees for businesses that use the app, as well as small fees for individuals who opt to use its expanded services.

Square makes money from Cash App by charging businesses transaction fees for using its software. The company charges 2.75% per transaction to businesses that accept Cash App payments.

Square also makes money through individuals who use the app. Although individuals can use the Cash App for free to transfer money to friends or businesses, they have the choice of using its expanded features for additional fees.

For a 1.5% transaction fee, individual users can expedite deposits to have them transferred immediately into their bank accounts instead of waiting the standard deposit time. They can also send personal payments from credit cards for a 3% transaction fee.

Individuals and businesses can download the Cash App for free on their Android and iOS devices through the App Store or Google Play. After linking a debit card to the app, users can begin sending money to and receiving money from other users of the app.

One of the key differences between Square Cash and its competitors used to be that Square Cash moved money in and out of a users’ debit card account directly instead of keeping cash in an account through the service provider. However, that changed when Square launched the Cash Card in May 2017.

Cash Card is a Visa card that's linked to a user's Cash App account. Individual Squarespace users can use the free card as they would use a debit card to pay retailers with the money in their Cash App. They can even get cash back at stores that offer that service with debit purchases. In January 2019, Square launched a similar free debit card for businesses called Square Card.

The U.S. fintech industry is dominated by PayPal Inc. (PYPL), PayPal-owned Venmo, Facebook Inc. (FB), Alphabet Inc. (NASDAQ: GOOG), Apple Inc. (AAPL), Amazon.com Inc. (AMZN), and Square, each of which has launched a P2P payment service in the last decade.

Square has quickly grown into one of the largest payment processing companies in the United States. Since its November 2015 IPO, the company has expanded its business model beyond payment processing to include scheduling, employee management, and business analytics.

The company reported $431 million in revenues in its third quarter of 2018, which is a 68% increase from $257 million during the same period in the previous year. Square does not report separate earnings for its Cash App, meaning it is difficult to tell how much money that service contributes to the company's quarterly revenues. 

As an integral part of Square’s rapidly growing business, however, the Cash App has become a leader in the P2P payments ecosystem. With 33.5 million cumulative downloads, the Cash App surpassed Venmo in August 2018 for the first time ever, bringing it to the No. 1 spot in terms of downloads.