Demand For Earned Wages Services Surging Amid COVID-19
This week, Credit Suisse released research estimating that 1.2 million Cash App users have set up direct deposit, up from just 500,000 at the end of March. Chime, with its 8 million accounts and estimated 5.3 million customers, likely has two million direct deposit users.
In its path to becoming a digital bank, Square isn’t stopping with direct deposit, says Credit Suisse analyst Timothy Chiodo. “We think they’ll add budgeting tools and bill payment capabilities.” Credit cards and buy-now, pay-later loans will get added too, he expects.
By piling on more financial products, Square will ramp up profitability under the same strategy banks have used for centuries: attract customers with one feature, then cheaply cross-sell them on others. For instance, it’s free to buy a stock or send money to a friend with Cash App. But to instantly transfer money into your bank account, Square charges a 1.5% fee, up from 1% last year. Credit Suisse thinks instant-transfer fees made up more than half of Cash App’s $589 million in revenue last year. It projects the app will rake in from $1 to $2 billion in gross profit by 2023, potentially comprising half of Square’s total profits.
One major investor in Square, New York investment management firm Ark, claims Dorsey’s company poses a large threat to brick-and-mortar banks because it can acquire customers much more cheaply. Ark says Cash App can recruit a new user for as low as $20, while it costs banks nearly $1,000 to reel one in. The key question becomes how valuable those customers are. For traditional retail banks, a customer’s lifetime value ranges from $1,500 according to Ark to up to $4,000 according to banking analytics firm Novantas. Ark thinks digital bank users can be worth up to $900 over eight years, although that number will fluctuate significantly as neobanks add new features.
Investors have been impressed by Cash App’s recent progress. After the company reported first-quarter earnings on May 6, Square’s stock surged 10%. It’s down just 4% from the market’s peak on February 19, before the coronavirus crisis caused stocks to drop steeply. Over the same period, the S&P 500 has fallen 13%. Follow me on Twitter or LinkedIn . Check out my website . Send me a secure tip .
I cover fintech, cryptocurrencies, blockchain and investing at Forbes. I’ve also written frequently about leadership, corporate diversity and entrepreneurs. Before … Read More
I cover fintech, cryptocurrencies, blockchain and investing at Forbes. I’ve also written frequently about leadership, corporate diversity and entrepreneurs. Before Forbes, I worked for ten years in marketing consulting, in roles ranging from client consulting to talent management. I’m a graduate of Middlebury College and Columbia Journalism School. Have a tip, question or comment? Email me [email protected] or send tips here: https://www.forbes.com/tips/ . Follow me on Twitter @jeffkauflin. Disclosure: I own some bitcoin and ether. Read Less ...