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Why Square Stock Jumped Today

What happened

Shares of Square (NYSE: SQ) climbed 7% on Tuesday after the fintech leader announced new instant payment services for its payroll customers. 

So what

Square's new On-Demand Pay service will allow its customers' employees to transfer up to $200 of their earned wages each pay period -- ahead of their normal paycheck -- to Cash App for free, or to a linked debit card for a small fee. 

"Because businesses still run payroll on a fixed schedule, employees are paid days or weeks after they've worked," Square Payroll General Manager Caroline Hollis said in a press release. "We created On-Demand Pay for employees so they can access their earnings when they need them, as soon as their shift has ended."

An upwardly sloping chart.

Investors bid up Square's stock on Tuesday. Image source: Getty Images.

Meanwhile, Square's new Instant Payments service will allow employers to fund their payroll instantly using the money in their account, rather than the several days it typically takes with traditional payroll services. The service is designed to alleviate the cash flow challenges many businesses are struggling with during the COVID-19 crisis. 

Now what

There are more than 80 million hourly workers in the U.S. alone, many of whom would like to gain more immediate access to their pay. Square knows this, and its new On-Demand Pay feature is designed to draw more people into its rapidly expanding Cash App ecosystem.

Likewise, thousands of small businesses would love to be able to hold on to their cash a bit longer so as to alleviate the cash crunches they often face during pay periods. Instant Payments is geared toward helping business owners solve these challenges.

Together, On-Demand Pay and Instant Payments should help to strengthen Square's seller ecosystem, fueling its own growth in the process.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Square and recommends the following options: short September 2020 $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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