Square’s Cash App Could See 65% Growth Next Year as it Takes on Venmo

Square is enjoying strong growth with its Cash App, which could turn a profit as early as next year and is proving to be a strong rival for PayPal’s Venmo.

The peer-to-peer payments app accounted for more than 25 percent of Square’s revenue last year. Now data shows that it is making its way into Venmo’s user base, with Macquarie analyst Dan Dolev telling The Motley Fool that Cash App is gaining popularity in Venmo’s typical strongholds, including New York, California and Massachusetts.

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Venmo has reason to be worried: Square reported $279.8 million in subscription and services revenue for the third quarter, a whopping 68.3 percent boost from the previous year. For its part, Cash App revenue surged 115 percent in the third quarter, with Dolev calling management's guidance of 45 percent growth for the app next year conservative. In fact, he says 65 percent growth is possible.

In the meantime, Square is also successfully cutting into Venmo's user base with the launch of new features, including instant cash back for purchases made with its Cash Card and commission-free stock trading in Cash App.

“We really view this product set to be an engagement driver for us as we mentioned earlier, to help build out the network, and to help bring discoverability and daily utility to the app that enable growth for other revenue streams within the app,” CFO Amrita Ahuja explained on Square's third-quarter earnings call

And in June, the New York State Department of Financial Services Superintendent Maria T. Vullo said the agency approved Square‘s application for a virtual currency license, which will enable residents in New York state to buy and sell bitcoin via its Cash App.

Square and Venmo aren’t the only players in the P2P payments sector. Zelle’s Q3 results showed its year-over-year payment values rose by 58 percent, while transaction volume increased by 73 percent. In addition, Bank of America announced that it saw a 76 percent year-over-year increase in Zelle payments in Q3. Data shows that one in two adults with a U.S. bank account have access to Zelle in their mobile banking app.