How does Square make money?

Square is an American financial and merchant services company based in San Francisco, California.

The company was founded in 2009 by Jack Dorsey and Jim McKelvey. The idea for Square came after McKelvey – a seller of glass bathroom fittings – could not finalize a $2,000 sale because of his inability to accept credit cards as a form of payment.

From a small office in St. Louis, the company was then named Square after its signature square-shaped card readers.

After an IPO in 2015, Square has grown quickly with a current market cap of over $100 billion and over 24 million active monthly users.

Square revenue generation

The company makes money through its Cash App P2P payment service. The app and many of its core functions such as fund transfers are free to use.

Revenue is instead derived by charging businesses and also consumer transaction fees whenever they access additional services.

Business charges

Whenever a business accepts a Cash App payment, Square charges a 2.75% fee.

This occurs in one of two ways:

• When an individual makes an in-app P2P payment to a business.
• When an individual uses the Square Cash Card to make a payment to a business. The Cash Card is a prepaid Visa debit card linked to each user’s account.

Expedited transfer and credit card payments

Consumers can expedite fund transfers from the Cash App account to a nominated bank account for a 1.5% fee.

This enables the consumer to have the funds land in their account immediately and not after the standard two or three days.

Personal payments can also be made via a linked credit card. For this service, Square charges a 3% transaction fee.

Bitcoin exchange

In late 2017, Square added bitcoin functionality to Cash App accounts. This enabled users to buy and sell bitcoin using the funds in their accounts.

For approximately two years, this service was free. Then, in 2019, Square began charging fees as high as 1.76% for every purchase of bitcoin. Cryptocurrency has now become so popular that the service is one of Square’s most profitable revenue streams.

The company also charges a premium for facilitating the exchange – mostly between 1 and 4%. For example, Square may purchase $5,000 worth of a bitcoin from one customer and then sell the same amount to another customer for $5,200.

Generally speaking, the precise fee varies according to fluctuations in bitcoin value.

Key takeaways:

• Square is an American financial and merchant services company. The idea for the company was borne after founder Jim McKelvey could not accept a credit card as payment for a $2,000 piece of tapware.
• Square drives most of its revenue through its P2P Cash App service. For consumers, transferring funds using the basic version of the app is free. For businesses, Square charges a flat 2.75% fee for every eligible transaction.
• Square makes money by charging consumers 1.5% to expedited fund transfers. The company has also seen significant growth in its bitcoin exchange service. For a fee of 1-4%, Square customers can buy and sell bitcoin using account funds.