Downloads of Square’s Cash App are pulling further ahead of Venmo, according to research by Instinet. While the fintech firms’ apps each get installed on millions of phones every month, a sizable chunk of Square’s growth appears to come from lower-income customers on the margins of traditional finance.
Square caught up to PayPal-owned Venmo last year and has been pulling ahead since, according to Instinet brokerage analysts Dan Dolev and Conan Leon. Square has registered 56.1 million cumulative downloads, 6.4 million more than Venmo as of June—the biggest gap recorded between the two so far.
Downloads alone, of course, don’t show the complete picture. Venmo recently said it has more than 40 million active accounts, which it defines as accounts that were used at least once in the past year. The company says its most active users check the app daily, and the average user opens it between two and three times per week. Square doesn’t disclose comparable figures—the company says it had 15 million monthly active users as of December (pdf).
Instinet’s research also reveals how Square and Venmo are tapping into different demographics. In a survey, consumers who use Square’s Cash App more often than Venmo tended to have lower incomes, defined as less than $50,000 per year.
Instead of disrupting traditional banks, Square, for now, could be on course to disrupt the prepaid payment card business. More than 80% of its customers have used prepaid cards in the past, and 45% of them said they used these cards less after they began using Cash App. Taking market share from prepaid cards, which can carry high fees, could be a good thing for lower-income customers. As Square adds more bank-like services, Instinet analysts think the 50 million underbanked Americans, who go outside the banking system for money orders and payday loans, could represent a vast market for the company.
Both PayPal and Square, of course, are looking to build much more than a niche customer base. Venmo says network effects are driving its reach well beyond the millennial set that fueled the firm’s early growth. Likewise, Instinet says Square is aiming to build a broad ecosystem that wraps together the merchants who use its payment terminals, consumers using its Cash App, and other products.
Rapidly growing companies like Venmo, Square, and Chime, another banking startup, are scooping up underbanked and younger clientele that fall outside the core market for traditional banks. But over time, they’re likely to increasingly go head to head with the big banks. Foreign interlopers like UK-based Monzo and Revolut, meanwhile, have also set their sights on the US. However, they could be stepping into a market in which a wave of fintech upstarts are already well entrenched with American consumers.