Will Square Threaten Banks to Be Consumers’ Primary Bank Account?

CNBC reported that:

"Square customers are treating the payment company's Cash app more like a bank account than the company intended, CEO Jack Dorsey said this week. While that wasn't a goal, he said Square plans to capitalize on the trend. "People are using this as their primary banking account, and in some case it's their only bank account," Dorsey said. "We are reaching an audience that is under-served and even to the point of unbanked, which wasn't a stated goal but it's something we love and want to lean into more." The company had 7 million active customers on its money-transfer app in December alone, Square said in its recent quarterly letter to shareholders."

  According to Cornerstone partner Steve Williams:

"Many predicted Square would fade away when the physical mobile dongle became a thing of the past. Seven million Cash users is a signal that consumers 'hire' a bank to make it easy to hold and move money, and they could care less if it’s a bank per se. Banks have to jump on simple money movement not because it makes money but because it can help preserve the legacy banking revenue attached to those accounts."

I'll add my two cents here: Dorsey may be accurate that "people are using [Square] as their primary banking account," but it's probably not a very large number of people. As we've previously reported here on the Insight Vault, few consumers call a digital bank or neobank their primary bank.

In a recent survey we conducted, we asked consumers "Which of the following financial institutions (or type of institution) do you have your primary checking account with?" Just 1% of Millennials say they have their primary account with a digital bank (i.e., like Chime and SoFi).

What's really going on here? Deposit displacement. Easy money movement is eroding the importance of the primary checking account. But even Square, which is benefiting from this trend today, won't be immune to its effects in the future.

Ron Shevlin
Director of Research
Cornerstone Advisors