Why is Square down 56%?

Square’s New Most Important Product

The fintech company is finding all sorts of ways to leverage one Cash App feature in particular.

This article originally appears on The Motley Fool, written by Adam Levy.

Square (NYSE:SQ) introduced its Boosts instant cashback program in 2018 to help increase the adoption of its Cash Card. The program gave users instant rewards for making certain qualified purchases with their Cash Cards.

But in 2020, the company started experimenting with using Boosts to increase the adoption of other services in Cash App — and it worked. That success demonstrated the benefits of Square’s ecosystem strategy, and it showed the Boosts program has the potential to be right at the center of that ecosystem.

Boosting product adoption

Square started offering Cash Card users a new Boost in the fourth quarter. Instead of receiving cash back on certain purchases, it offered rewards in the form of Bitcoin. At one point, it was offering users as much as 10% back in the cryptocurrency on any single purchase they made.

CFO Amrita Ahuja said half the people who used the Bitcoin Boost were completely new to Bitcoin in Cash App. One-third of those new Bitcoin users went on to make their first Bitcoin purchases a month after using the Boost. That’s meaningful product adoption driven by a relatively short and inexpensive campaign.

Following the success of Bitcoin Boosts, Square offered a one-time boost for users who set up a direct deposit in Cash App. Ahuja called out the feature during the fourth-quarter earnings call but didn’t provide the same level of detail about its results as she did for Bitcoin.

There are more opportunities for Square to use Boosts to improve product adoption. For example, in a bid to increase adoption of its brokerage service, it could offer a Boost that gives users shares of stock in the retailers where they use their cash cards. Or if it launches a savings product, it could Boost purchases with bonus deposits into those savings accounts.

Low customer acquisition costs

Boosts offer a cost-effective way to accelerate the adoption of the various services within Cash App. To begin with, Square sports a customer acquisition cost of less than $5 per user.

From there, the fintech company can take its time to see how each user organically behaves within the app: which services they adopt, which they try and then stop using, and how they spend their money in the app or on Cash Card. That can make Square’s investments in Boosts extremely efficient as it has the exact data needed to drive adoption.

“The way we built the program is a flexible, dynamic, and potentially personalized program,” Ahuja told analysts during the fourth-quarter call. “And so we’ve been able to manage our costs here and returns more efficiently.”

What’s more, Boosts aren’t the only reason that Cash Card holders use their cards. Ahuja says just one in 20 purchases have a Boost attached, so they seem to drive organic Cash Card adoption instead of purchases that only happen with a reward attached.

Ultimately, increasing adoption and engagement with multiple services in Cash App will increase the lifetime value of Square’s customers, and the company has room to increase its marketing and sales investment to drive user growth.

The long-term potential for Boosts

Way back in 2018, then-CFO Sarah Friar described the potential for Boosts to become an advertising product. Retailers would fund the cashback rewards and pay for placement in the Boosts app if Square could prove incremental reach and spend through Cash Card.

Revisiting that idea during the recent earnings call, Ahuja noted, “We’ve seen Boost’s ability to drive a lift in acquisitions at compelling and low customer-acquisition costs for various partners.” CEO Jack Dorsey wants to continue running experiments to drive product adoption in the app in the short term, though. Still, Ahuja says the company will continue working with merchants and partners, indicating that Square hasn’t ruled out the potential for Boosts as an ad product.

The level of data Square has on its users would be enviable for any advertising company. Improving the adoption of its services, including direct deposit, Cash Card, and investing, will only strengthen that position. With a deep understanding of a user’s financial position and shopping habits, Square may be able to make promoted Boosts extremely effective for its partners if and when it launches such a product.

The true long-term potential of Boosts will come from flipping the script on the product, turning it from a marketing expense into a source of marketing inventory. It has already started to operate as an internal marketing source for Cash App features. The next step for the fintech company will be to offer that same inventory to third parties, thus turning a source of expenses into a source of revenue.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Adam Levy owns shares of Bitcoin. The Motley Fool owns shares of and recommends Square. The Motley Fool recommends Bitcoin. The Motley Fool has a disclosure policy.

MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here

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