When P2P app Square Cash announced a move to support cash balances a few days ago, it seemed a minor enough new capability. But as is true for so many things about Square, the fear is not what payment facilitator extraordinaire Square is today, but what Square will morph into tomorrow.
“There’s not a major impact over the short term, but a very significant potential impact over the long term,” said Rick Oglesby, senior analyst for Double Diamond Group.
First, let’s briefly look at what Square Cash added. In a nice piece about the change in TechCrunch, the move was designed to mimic other cash retention capabilities of more traditional apps.
“Users can now choose to switch on an optional ‘Cash Drawer’ to hold onto money in the app, similar to other digital wallets. The addition will make the app more useful to merchants who prefer to maintain a cash balance in their accounts, as they would on PayPal or elsewhere. To enable the Cash Drawer, there’s a toggle switch in the app you can tap that will then direct Square Cash to keep all your incoming funds ‘in Cash.’ When you’re ready to withdraw those funds, you tap the “Cash Out” option to move the money to your bank,” the story noted. “To Square Cash’s advantage, the feature will also mean that the company will see lower transaction fees following the launch of Cash Drawer, given that users who keep their cash on hand instead of extracting it each time will actually perform fewer transactions on the platform.”
Oglesby saw the move as a long-term strategy push from Square.
“By beginning to hold balances, Square has the potential to become a full financial services company and not just a payments company. Square Capital already provides a lending facility, now it also has funding accounts,” Oglesby said. “Square started out focused on payments innovation, then more on POS software innovation, and now is looking heavily at broader financial services. It’s pulling together a platform for innovation across a variety of categories, which increases its revenue potential while still focusing on the very small merchant segment.”
With its recent IPO generating cash for strategic investments, Square is a rival that needs to be watched—very closely.