Square Cash gets physical (SQ)

This product expands on the firm’s current virtual card offering. The card, which is funded by customers’ Square Cash balance, can be used anywhere that accepts Visa. It's currently available on an invitation-only basis.

The feature could drive attention to Square Cash, ultimately improving its positioning.

But that could detract from the firm’s P2P monetization efforts. As most P2P services are, Square Cash isn’t profitable for the company — in 2014, it was estimated that Square took a 10-cent loss per transaction. If the firm grows volume, those losses may magnify. But Square has been taking steps to monetize its offering. If users want to cash out their balance back to their bank account, they either have to wait a day for it to process or pay a 1% fee for Instant Deposit. The physical card allows customers to spend their balance immediately, thus providing another route for instant access to the funds and disincentivizing customers from paying the cash-out fee. If Square is pushing for Cash to become a more meaningful contributor to its subscription and services-based revenue segment, which will ultimately become its major business driver, this feature could be a long-run setback.

Peer-to-peer (P2P) payments, defined as informal payments made from one person to another, have long been a prominent feature of the payments industry.

That’s because individuals transfer funds to each other on a regular basis, whether it's to make a recurring payment, reimburse a friend, or split a dinner bill.

Cash and checks have historically dominated the P2P ecosystem, and they’re still a popular tool. But as smartphones become a primary computing device, top digital platforms, like Venmo and Google Wallet, have enabled customers to turn away from cash and make those payments digitally with ease. Over the next few years, though overall P2P spend will remain constant, a shift to mobile payments across the board and increased spending power from the digital-savvy younger generation will cause the mobile P2P industry to skyrocket.

That poses a problem for firms providing these services, though. Historically, most of these players have taken on mobile P2P at a loss because it’s a low-friction way to onboard users and won’t catch on unless it’s free, or largely free, to consumers. But as it becomes more popular and starts to eat into these firms’ traditional streams of revenue, finding ways to monetize is increasingly important. That could mean moving P2P functionality into more profitable environments, leveraging existing networks of friends to encourage spending, or offering value-added services at a nominal fee.

Jaime Toplin, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on mobile P2P payments that examines what’s driving this shift to mobile P2P and explains why companies need to find a way to capitalize on it quickly. It discusses how firms can use the tools they have to gain in the P2P space, details several cases, and evaluates which strategies might be the most effective in monetizing these platforms.

Here are some key takeaways from the report:

In full, the report:

Interested in getting the full report? Here are two ways to access it: