How Does Square Make Money?
The rapidly growing fintech company offers commission-free stock trading and cash transactions -- but does it make a profit?
March 27, 2021

Square (NYSE: SQ) is a payment technology company that allows businesses to efficiently accept payments and allows consumers to transfer money contactless through its Cash App platform. Square stock had a stellar performance last year as the world shifted in favor of remote payments and e-commerce, causing its share price to rise 250% throughout 2020. 

Square's business model

The company's business model is simple. Square co-founder and CEO Jack Dorsey (also co-founder of Twitter), has created a platform that challenges traditional banking institutions -- it's mobile with no physical shopfronts, processes payments quickly and sometimes instantly, eliminates the middle man, and provides merchants with valuable in-depth analytics. Square makes it accessible and affordable for small businesses to modernize and accept card payments. The company has two business segments:

  • Cash App: Square's mobile cash application that provides financial tools such as peer-to-peer payments, bitcoin purchasing, stock investing, and the Cash Card, which allows users to make purchases or use ATMs
  • Seller: the company's managed payment services, software solutions, hardware, and financial services offered to sellers

How does Square make money? 

Cash App is Square's largest and fastest-growing form of revenue. The app does not charge transaction fees on Bitcoin sent or received through Cash App but charges service fees on the buying and selling of Bitcoin to earn revenue. Cash App is free to download and use. Businesses pay a 2.75% fee to accept Cash App payments, and users pay fees to withdraw money. Cash App accounted for 45% of Square's total gross profit in 2020, generating $1.2 billion, a 168% increase from the previous year. Cash App revenue accounted for 63% of total revenue, growing 440% to $6 billion in FY 2020. Over 3 million customers purchased Bitcoin through Cash App last year.

Seller accounted for 55%, or $1.5 billion, of Square's gross profit in FY 2020, an 8.4% increase. Seller revenue rose just 1.9% to $3.5 billion, accounting for 37% of total revenue. Square charges fixed costs for some of its point of sale devices which are popular with restaurants and hospitality businesses, however, most of its revenue comes from processing fees. 

Square has also invested in Bitcoin, buying $50 million worth last year when the price per coin was $10,000 and a further $170 million last month, representing around 5% of the company's total assets.

What's next for Square? 

Square has a bright future -- its Cash App is rapidly gaining popularity and its Seller segment helps small businesses accept payments efficiently, opening more doors to small-time sellers. As we move more and more towards a cashless society, Square has the resources and foundations to both facilitate and capitalize on this phenomenon. 

The company has just launched Square Financial Services, a legitimate bank, after filing its application in 2017. The bank will issue loans and offer deposit-insured accounts, and Square is now self-sustainable in terms of regulation, as it previously partnered with Celtic Bank for its banking products.

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