Could This Be Square's Next Billion-Dollar Business?

Square (NYSE: SQ) has been conducting small-scale tests of a stock-trading platform within its Cash App. If it ends up introducing this on the entire platform, it could be a way to get some serious revenue from the app's 15 million active users.

In this Industry Focus: Financials clip, host Jason Moser and Fool.com contributor Matt Frankel, CFP discuss what this could mean for Square in its quest to become its users' one-stop financial solution.

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This video was recorded on Sept. 16, 2019.

Jason Moser: We were talking about Square for a minute. We talked about a number of the different ways Square makes money. You'd been looking into something that Square is dipping its toe into here that could have a profound impact on the business over time if they're successful. It's more along the lines of the kind of stuff that we're doing here every day, isn't it?

Matt Frankel: I saw a report last week, I think Friday. Square is testing, on a small scale, stock trading capability in the Cash app. Think of a similar platform to Robinhood. Free stock trading, simple platform. It's designed to compete with like a Robinhood type of thing. This is not a direct competitor to things like E*TradeTD Ameritrade. Different clientele. These are people who don't necessarily want to research or report on the stock they're buying. They just want to dip their toes into the stock market a little bit.

Square has a couple of advantages. One, the Cash app has 15 million active users right now. Just to put that in perspective, Robinhood has six million users. Robinhood all by itself as a stand-alone platform got a valuation of almost $8 billion in July in a private funding round.

Moser: Yeah, but that doesn't necessarily make it right. WeWork is a good example of the danger of the private market valuation.

Frankel: [laughs] Fair enough. But, having said that, you have to figure, a platform with six million users that pretty much gives its service away for free -- Robinhood has some ways of making money -- is valued at almost $8 billion. Square has 2.5 times the user base already that it could market this stock platform to. I don't know if you've used Square's Bitcoin trading platform. I did it just to see how it worked with a tiny amount of money. It's a very easy, user friendly platform. If they can translate that into the investing world, and make something that's really easy for the average American to buy their first stock, there's a lot of potential to market this, especially because now, this is the first time you'll be able to link your bank account, your investments, and a peer-to-peer payment platform together. It's another step on Square's journey toward being the one-stop financial shop. I don't know of any other thing that links those three. Does Robinhood have a peer-to-peer payment app at the moment?

Moser: No, I don't believe it does. Robinhood tried to dabble in the checking and savings area, and quickly found they were in over their heads. To your point there in regard to size, not only does Square have the bigger user platform, but ostensibly far more resources. I would think probably a greater team of people that can come up with generally better ideas. More innovation in an environment like that. You look at a company like Square, or Stripe, or PayPal, all of these companies are doing the same kind of thing. It essentially seems to me like they're building the banks of the 21st century. They're building the financial services companies of the 21st century. What used to be very much just a few big players in a space in the form of big banks that really pulled all of the strings, technology has changed that in a lot of ways. Banking has evolved far beyond just banking. It's financial services. You're seeing a lot of these smaller, more nimble companies really making those early investments, trying those new things. They're not all going to work out. Some will work, some won't. But this is the time you have to try those things, because you've got big customer bases and a lot of different ways to get things done.

Frankel: Yeah, definitely. We also saw another encouraging thing. Square is reportedly buying a company called Third Party Trade. They build out the backend functionality for trading platforms. It's looking like this is going to happen sooner rather than later. It could be a great way, like I said, to monetize those Cash app users in a way that even Venmo isn't doing. I'm excited to see where this goes. I'm still a big Square fan, as everybody here knows.

Moser: Yeah, me too. I love them all. I own PayPal, Square, MasterCard, Visa. I feel like there's room for all of those businesses to continue doing well here in the coming years. It's a fast-changing space. You want to be there with the companies that are shaking things up, the companies that are implementing those changes, as opposed to the companies that are responding to the changes. We'll leave it at that.

Jason Moser owns shares of Mastercard, PayPal Holdings, Square, and Visa. Matthew Frankel, CFP owns shares of Square. The Motley Fool owns shares of and recommends Mastercard, PayPal Holdings, Square, and Visa. The Motley Fool has the following options: short October 2019 $97 calls on PayPal Holdings and short September 2019 $70 puts on Square. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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