To The Moon

Block: Cash App Pay & Afterpay

Over the years, the mobile payments industry has become increasingly crowded and competitive, and industry participants have had to keep up with the latest fintech trends to stay relevant and avoid diminishing user engagement. Block, Inc. $Block(SQ)$ has been striving to penetrate the mobile payments industry with the launch of Cash App Pay, enabling users to purchase goods and services through the Cash App, and the acquisition of "Buy now, pay later" ("BNPL") company Afterpay Limited. The ability to engage in commercial transactions through the Cash App has opened the doors for transforming the app into an e-commerce platform, creating an advertising avenue that is currently under-appreciated by the market.

As of September 2022, the Cash App had 80 million annual active users, buoyed by the broad range of financial services offered through the app, including the ability to purchase stocks and conduct tax filings. To keep users engaged, Block launched Cash App Pay in September 2021. While the firm entered the arena quite late relative to rivals like Apple Pay (launched in 2014), it has been able to leverage its existing merchant base to induce wide-spread adoption.

At launch, Cash App Pay was only “available to Square sellers as a software update, with no technical integration or new hardware required, creating a seamless onboarding experience.” The easy integration into the existing Square hardware/ software ecosystem makes Cash App Pay more appealing than other payment service providers for the Square merchant base. Block essentially benefits from already having a well-established merchant base to induce adoption of Cash App Pay seamlessly. As the Square merchant base grows, so does the number of sellers accepting Cash App Pay. The growing acceptance of Cash App Pay both online and in-store induces more people to explore Cash App Pay (and the Cash App more generally), thereby inducing a network effect. To further extend this network effect, Block expanded the accessibility of Cash App Pay beyond Square sellers in September 2022, bringing various brands like American Eagle and JD Sports into the network.

Amid the rising popularity of "Buy now, pay later," Block made a big splash into the industry by acquiring Afterpay in August 2021.

Users’ ability to pay in four interest-free instalments makes the Cash App stickier, enabling Block to better fend off competitive threats from the likes of Affirm Holdings, Inc. (AFRM) and Klarna.

The expanding acceptance of both Cash App Pay and Afterpay beyond the Square ecosystem yields benefits beyond greater processing fees. It will give Block insight into broader consumer spending and commercial trends across non-Square sellers (merchants that are currently not using Square POS / Square online).

Such intelligence in aggregation could potentially be used to offer advisory services to the company’s own Square sellers, helping merchants make better business decisions amid evolving industry-wide and macro trends. Broader insight into what type of products/ services Cash App users purchase outside of Square network can also be used to inform ad targeting efforts to help merchants better market their products to relevant audiences (more on this later). The point is, the network effects induced by Block’s mobile payment solutions can also help make the Square ecosystem stickier.