Square’s CFO on bitcoin, Afterpay, and where the firm goes next

Square started out in 2009 as a payment-services provider, enabling small businesses to process card payments with inexpensive white card readers and tablets. Since then, the Jack Dorsey-led company has added more services for businesses, a digital-payments service for consumers known as Cash App, a payments platform for artists, and a developer platform that plans to build a decentralised bitcoin exchange.

Cash App’s growth exploded earlier this year, partly from a flood of pandemic stimulus payments. The digital-payments app lets people send money to one another via smartphone, purchase things with a prepaid debit card and invest in bitcoin and fractions of individual stocks. It competes with digital wallets from other payment firms, such as PayPal.

In August, Square announced plans to buy Afterpay, an Australian firm that offers buy now pay later services, for about $29bn in stock. At the time, Square said the deal was aimed at tying the company’s Cash App and seller ecosystems more closely together and help drive more commerce between merchants and consumers.

The Wall Street Journal spoke to Amrita Ahuja, Square’s chief financial officer, about managing the company’s growth strategy. Edited excerpts follow.

WSJ: How does the company think about expanding its business?

Ahuja: We see our business as an ecosystem of startups. And each of those startups may have additional startups inside of it. We test with the launch of something small, we learn, we get customer feedback, we iterate, and we end up doubling down on the things that work.

WSJ: How large is your share of the payment-app market?

Ahuja: [In the places where we operate], there is a $100bn total potential market on the seller side of the house, and a $60bn total market on the Cash App side of the house. In both instances, we’re about 2% or 3% penetrated. The majority of what gets served in both of those marketplaces today is done by legacy institutions.

WSJ: How do you plan to increase your penetration rate?

Ahuja: We see three primary ways [to grow Cash App’s penetration rate.] One is product adoption within our existing base of customers. The second is marketing to reach new customers. And a third key way is expanding and broadening our product suite.

We acquired Credit Karma Tax and hope to have a more integrated offering there with a new tax season, and we just launched Cash App Pay, which allows Cash App users to pay businesses on the seller side of our ecosystem [by scanning a QR code]. It really reduces checkout friction, and gives people a fast way to use their Cash App balances.

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WSJ: What do you see as the biggest obstacle for more people to use Cash App? Is it that older people are slow to change?

Ahuja: Our largest set of customers are millennial and Gen Z customers. But we’ve grown tremendously and see traction with older demographics, as well as with higher-income customers. And that’s an area that we want to continue to grow. When you think about layering Afterpay onto Cash App, we see an opportunity to bring together two very complementary demographics of customers. We are starting with millennial and Gen Z, but then growing in terms of age demographics with Afterpay, bringing a more global base of customers and higher income.

WSJ: What differentiates Square from other payment providers?

Ahuja: We have the ability to sit on both sides of the counter, and figure out the ways that we can add unique value to both the merchant and the consumer in that exchange.

WSJ: The company in August said it would spend $29bn on Afterpay. What were the considerations behind the transaction?

Ahuja: “Buy now pay later” is a very attractive category that serves both merchants and consumers. Consumer preferences are shifting away from traditional credit cards to more understandable products like buy now pay later [a type of short-term financing that allows consumers to make purchases and pay for them later, in installments]. Merchants are seeing buy now pay later as an opportunity to increase conversions, increase average order volumes and acquire new customers.

A lot of credit cards have lost the trust of millennials and Gen Z’s, many of whom grew up in the wake of the 2008 financial crisis. They see the hidden fees, the late fees, the interest and the debt spiral that credit cards can sometimes lead to. From a consumer perspective, Afterpay is a no-cost service to the customer. If installment payments are made on time, there is no interest.

WSJ: Square last year got a banking license. Will the company become more like a traditional bank?

Ahuja: The bank charter today is focused on serving small businesses, a category that has largely been underserved by the traditional financial institutions. It isn’t necessarily replacing what a bank is doing today, it’s serving something where need hasn’t been met. From a payments and software perspective, there may be an opportunity for us to move upmarket over time.

WSJ: What’s the company’s view on bitcoin, compared with other digital assets? You have a functionality that allows people to trade bitcoin.

Ahuja: We ultimately believe that there’s a high probability that the internet will have a native currency. And we believe bitcoin is the strongest contender to be that native currency. It’s the most secure and resilient. We believe it’s principled because it’s decentralized, transparent and has a consensus-based development model. Bitcoin can provide financial access to those who have historically been marginalized by existing financial systems or who have distrust for their federal banks, as we’ve seen in certain regions, like in Latin America.

WSJ: Why are you so optimistic about bitcoin?

Ahuja: We’ve been in the market for three plus years with this [Cash App] bitcoin product, and we have seen growing adoption. We had three million people buying or selling bitcoin through Cash App in 2020. Then in January alone, we had one million people who are new to bitcoin. We think it’s growing in adoption and popularity and understanding and education. And we want to be a part of that ecosystem, learning and growing with it.

READ Overregulation could push illicit crypto transactions into the market, US experts warn

WSJ: What does this increased interest in bitcoin mean for your business?

Ahuja: We think there’s an opportunity as a company to learn and participate in a disciplined way, whether from a product perspective — as we’ve done for some years now with Cash App, where we enable customers to buy and sell as little as $1 worth of bitcoin — or in building this new business unit TBD, which will enable on- and offramps to bitcoin, and enable a broader, more decentralized financial ecosystem.

WSJ: What are on- and offramps?

Ahuja: Converting fiat currencies into cryptocurrency is the on-ramp. The offramp is the other way, converting your crypto back into fiat. What we’ve seen is that there are on- and offramps where those conversion mechanics are spotty. They’re different market by market, they aren’t always readily available to consumers. And so creating those on- and offramps is what TBD intends to focus on.

WSJ: How long will it take to develop these?

Ahuja: We don’t have a time frame to share at this point.

WSJ: Square also bought bitcoin for its corporate treasury. What’s the reasoning behind this investment?

Ahuja: We’ve purchased bitcoin for our own balance sheet, which we believe not only shows that we have skin in the game toward that more inclusive and broad future that I outlined for bitcoin, but also could provide attractive financial benefits over the long term.

WSJ: How much of a concern is the lack of US regulation around bitcoin and other crypto assets for you? There also aren’t specific rules on how to account for these assets.

Ahuja: There’s certainly a lot for us to learn. From a balance sheet perspective, there could be quarter-to-quarter fluctuations in terms of how you mark the value of bitcoin and its treatment as an intangible asset from an accounting perspective.

We believe the potential longer-term opportunity makes it worth any near-term volatility. We also believe that there are attractive financial benefits, providing diversification and potentially a longer-term inflation hedge given the scarcity of bitcoin, relative to other currencies.

Nina Trentmann is bureau chief of The Wall Street Journal’s CFO Journal. Email her at [email protected]

This article was published by Dow Jones Newswires

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