How Apple’s Pay Cash Could Affect Square



Peer-to-peer payment market heating up

Square (SQ) is one of the peer-to-peer (or P2P) payment service providers set to face stiffer competition as Apple (AAPL) enters the market. At its recently concluded Worldwide Developer Conference, Apple announced a money transfer service called Pay Cash, which is an extension of Apple Pay available on the iMessage app. With Pay Cash, users of Apple’s iOS can transfer money to their contacts on iMessage.

Apple’s Pay Cash, which is expected to launch later this year, will take on Square’s Square Cash, PayPal’s (PYPL) Venmo, Facebook’s (FB) Messenger, Snap’s (SNAP) Snapcash, and several bank apps.

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Sustaining Square Cash is a burden on Square

Square doesn’t generate any meaningful revenue from Square Cash, as it is a free service. Its benefit is that it can help Square recruit customers for its other services such as merchant payment support and small business loans.

Though Square Cash is a potentially vital service to Square’s long-term ambitions, the cost of sustaining the service continues to rise. Costs associated with Square Cash rose $4.7 million in 2016, and that followed an $18.0 million cost increase in 2015. Pressure from Apple Pay Cash could send these costs higher as Square works to defend its P2P payments market share.

However, the fact that Pay Cash will be restricted to iOS would mean limited competition for Square Cash, which is available on iOS and Android platforms.

Consumer interest in money transfer services surging

As illustrated in the chart above, research firm Javelin Strategy and Research forecasts that 126 million Americans will be using a P2P payment service by 2020. Considering that just about 69 million Americans were using P2P payment services in 2016, Javelin’s forecast implies a dramatic growth in just four years.


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