Square Cash is adding ACH deposits (SQ)

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Square Cash (Cash App), Square’s proprietary digital peer-to-peer (P2P) payments offering, has started supporting ACH-based direct deposits, according to a series of company tweets.

Interested customers can accept a disclosure, and then receive an account and routing number provided by Lincoln Savings Bank, which they can give to their employer and proceed as if the process was a regular bank-based direct deposit, according to TechCrunch.

Consumers are notified when the check is deposited into their Cash App balance, and then they can begin using it for any of the normal functions the app supports, including P2P transfer, spending via the firm’s debit Cash Card product, ATM withdrawals, cashout into bank, Bitcoin purchases, and more.

Adding such a common and popular functionality could appeal to a broad audience. In 2016, 82% of US workers were paid via ACH direct deposit, according to NACHA. That could give the Cash App’s new feature a broad addressable audience, especially among the 27% of US adults who are un- and underbanked, and therefore don’t have the option of ACH-based direct deposit, or among younger users just starting out in the workforce, according to Engadget.

That, in turn, could help Square Cash.

• It could boost engagement with the wallet.Targeting a new audience could expand Square Cash’s overall user base, which could scale quickly as those users drive their peers to the platform. But it could also boost user engagement across the board — by allowing customers to directly deposit more funds, it could grow average balance size, which might increase the likelihood that customers will do something with their balance, whether that be spending it via Cash Card, going to an ATM, or paying a fee to cash out.
• That could bolster the app’s recent growth tear.Square Cash counted 7 million actives in December 2017, and the Cash Card alone hit $90 million in spend during that time. Although this is a small total when compared with giants like Venmo, which saw $10.4 billion in Q4 2017 alone, it’s a solid figure that could point to impressive growth. Adding features that encourage engagement could also push more users to make monetized transactions, like spending via Cash Card or buying Bitcoin, which in turn could help Square Cash grow in a way that’s more lucrative to the company.

And it also marks another step in Square’s banking push. Right now, Square isn’t a bank, though it’s trying to become one — last year, it applied for an Industrial Loan Charter (ILC), the type of banking license most commonly sought by nonbanks, to bolster Square Capital, its lending service.

But as it currently stands, Square Cash, in many ways, functions almost identically to a lot of basic checking accounts, and could ultimately replace that service for certain sets of users, like un- and underbanked customers or younger, digitally savvy groups — something that prepaid cards are already doing. And so the move continues to blur the line between P2P, prepaid cards, and checking accounts, and, in turn, might help perpetuate an industry shift that’s worth keeping an eye on.

In the US, the in-store mobile wallet space is becoming increasingly crowded. Most customers have an option provided by their smartphone vendor, like Apple, Android, or Samsung Pay. But those are often supplemented by a myriad of options from other players, ranging from tech firms like PayPal, to banks and card issuers, to major retailers and restaurants.

With that proliferation of options, one would expect to see a surge in adoption. But that’s not the case — though BI Intelligence projects that US in-store mobile payments volume will quintuple in the next five years, usage is consistently lagging below expectations, with estimates for 2019 falling far below what we expected just two years ago.

As such, despite promising factors driving gains, including the normalization of NFC technology and improved incentive programs to encourage adoption and engagement, it’s important for wallet providers and groups trying to break into the space to address the problems still holding mobile wallets back. These issues include customer satisfaction with current payment methods, limited repeat purchasing, and consumer confusion stemming from fragmentation. But several wallets, like Apple Pay, Starbucks’ app, and Samsung Pay, are outperforming their peers, and by delving into why, firms can begin to develop best practices and see better results.

Business Insider Intelligence, Business Insider’s premium research service, has written a detailed report on mobile payments that:

• Sizes the US in-store mobile payments market and examines growth drivers.
• Analyzes headwinds that have suppressed adoption.
• Identifies three strategic changes providers can make to improve their results.
• Evaluates pockets of success in the market.
• Provides actionable insights that providers can implement to improve results.