Cash App Could Be the Fastest Growing Digital Wallet in the US

Square’s Cash App seems to be the fastest growing digital wallet in the US. As disclosed by Square, the number of Cash App monthly active users (MAUs) has more than tripled in two years, from 7 million in late 2017 to 24 million at the end of 2019. The more established digital wallet in the US, PayPal’s Venmo, surpassed 25 million MAUs at the end of 2019 according to our estimate derived from Venmo’s API, as shown below. Venmo seems to be growing its active user base at 50% year-over-year, slower than Cash App’s active user growth rate of 60%.

Cash App Venmo MAUs

We derived our estimates by combining data from Venmo’s API with an analysis of Google Trends and other assumptions which differentiate Cash App from Venmo. In any given month, the correlation between Google search interest in Venmo and Venmo signups is strong, with an R2 of 0.988,1 as shown below. Google Trends measures search interest in a particular topic and normalizes the data using a range of 0 to 100.

ARK Invest Cash App Venmo Google Trends

In our view, relative to Venmo, Cash App has grown disproportionately because, until recently, Square  targeted underserved customers with a savvy network-based marketing strategy and a clear product roadmap that should culminate in a fully functional digital bank. Today, based both on more recent marketing campaigns and on Google Trends, Cash App seems to be targeting more financially sound user groups. In early 2020, for example, Cash App, expanded its partnership with e-sports team ‘100 Thieves’, began to sponsor MIT’s Lex Fridman’s Artificial Intelligence podcast, and sponsored Tik Tok influencers to promote Cash App, attracting over 140 million Tik Tok views to date. In other words, Cash App is building a robust user base by targeting specific consumer networks with a sticky peer-to-peer payments ecosystem which has become the launching pad for higher value-add financial services.

Google Trends data suggest that Square’s strategic customer acquisition strategy is working, as searches for Cash App now are outpacing those for Venmo, as shown below.ARK Invest Cash App vs VenmoThat said, we believe Venmo’s platform still is enjoying good growth, as digital wallets continue to take share from traditional banks. As we will demonstrate in a forthcoming whitepaper, while Venmo’s growth is slowing,2 it remains a healthy peer-to-peer network.

Network effects appear to be the most significant advantage both Cash App and Venmo have over both banks and Challenger Bank startups. Peer pressure is a powerful force. Even after they opt out of peer-to-peer platforms, friends tend to lure former users back – even after months or years of inactivity – after they share meals and events and need to settle the bills. While Cash App seems to be taking share from certain population segments and geographies, Venmo is unlikely to lose control of its user base, as peer-to-peer networks bind peers to one another.

On the whole, we believe the rapid growth of both platforms is a serious threat to traditional banking franchises. Measured by the number of annual active digital customers, both Venmo and Cash App have surpassed every other financial institution in the United States, according to our research.3 During the next few years, as most banking functions migrate to smartphones, physical bank branches are likely to become stranded assets, if not albatrosses, on bank balance sheets.

  1. R2 indicates the percentage of variance in the dependable variable that is explained by the independent variable(s).
  2. Estimates derived from Venmo’s API suggest that the year-on-year growth of Venmo sign-ups slowed from 33% year-over year in December 2018 to 9% in December 2019.
  3. Please refer to the Digital Wallet section of ARK’s Big Ideas 2020 report (Pages 67 – 73). Updated Cash App annual actives number puts it in second position behind Venmo.

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