Loans and phones: Block's post-layoff battle with banks, fintechs

• Key insights: Block has expanded its BNPL product and launched a mobile phone service.
• What's at stake: The company is maintaining a development schedule following a downsizing of about 40% of its employees.  
• Forward look: Payment analysts say Block has maintained is competitive position against fintech rivals, even with the smaller staff

With mobile wallets becoming commonplace, Block is trying to improve its position among consumers and merchants through a range of phone plans, digital assets and alternative credit as it operates with a dramatically leaner staff. 

"It's about how we create a simpler wallet, to reach both sides of our business," Tanuj Parikh, head of commercial for Cash App and Afterpay, told American Banker. 

Cash App, Block's transfer service which also provides a bridge between merchants and consumers, has expanded the ties between Cash App and the Afterpay BNPL service. In a separate move, Block has launched a mobile phone plan. 

The goal for Block and rivals such as PayPal and Stripe is to enroll consumers to mobile wallets by expanding financial services, then offer that scale to build merchant networks. 

Mobile wallets have become mainstream. About two-thirds of Americans have used a mobile wallet, with 33% reporting they spend more with it than with a physical card, according to a recent LendingTree report. Among mobile wallet users, 43% said they like the faster checkout, 16% like the increased security and 11% dislike carrying cards. And 43% believe mobile wallets are more secure than physical cards, with 37% of mobile wallet users saying they have stopped shopping in a venue that didn't accept digital payments, according to LendingTree. 

Afterpay and AT&T

Cash App recently added a new tranche of national retailers—two dozen—to its commerce suite, which includes Cash App Pay and Afterpay. This addresses Block's strategy to add larger merchants to augment its traditional small business base. Cash App's foundational feature is P2P payments, which enables transfers and has about 56 million active users, according to Business of Apps. 

The app's growth has slowed in the past year, leading Block CEO Jack Dorsey to ramp up product development. Block recently introduced a group payments tool, called Pools; widened its post-purchase offering of its buy now/pay later product Afterpay in Cash App; and expanded its loan product Borrow. These products mimic most of what a bank offers. And by integrating BNPL into Afterpay, Block plans to bring these consumers in front of merchants. 

"Merchants don't just get Afterpay but access to an existing consumer base," Parikh said. "And these consumers have a place where they can manage all of their finances." 

Cash App also recently announced a pilot test of Cash App Mobile, a 5G phone plan that runs on AT&T's network and is designed for young people, underbanked consumers, and gig workers. Block partnered with web technology firm Gigs to build Cash App Mobile, which is priced at $40 per month including taxes and fees. The mobile plan will integrate with other Cash App payments and financial products. These products include stablecoins and other cryptocurrencies. Block recently said it would support stablecoin transfers via Cash App, which the company said would boost overall usage of cryptocurrencies. 

"Crypto and BNPL are two separate lanes. Afterpay doesn't have crypto under the hood," Parikh said. "But it's a broader ecosystem. For the next generation, crypto is important."

More products, fewer workers

Block's moves come as PayPal and Stripe expand their products. Stripe's stablecoin technology firm Bridge is collaborating with MoneyGram to issue MoneyGram's stablecoin, while PayPal has made Venmo — its version of Cash App — available outside of the U.S. for the first time. 

This follows work to link PayPal to Venmo, which had remained distinct for years due to the complex technology involved in making them interoperable. Analysts said Block's moves are positioning the company well.

"Square [Block] is seeing high financial services and integrated software adoption, even among larger sellers, and satisfaction and switching intentions improved YoY from a strong base, with Square being the provider that most respondents would be likely to switch to," Morgan Stanley said in a research note, adding Block is also well-positioned to extend market share through using new forms of AI, a key element for strategies at Block, PayPal and Stripe. 

Block's busy product schedule follows a substantial downsizing, which involves Block laying off about 40% of its workforce, attributing the move to the growth of AI. 

Analysts said there's no sign that the reductions are hindering product development.

"While investors remain focused on the sustainability of Cash App monetization, the company's competitive positioning, implications of workforce reductions, and AI impacts, Block's messaging has been consistent: Product velocity is accelerating, the organizational reset implemented over the last two years is showing tangible benefits, and AI is changing how it operates," TD Cowen analysts said in a research note. "The workforce restructuring discussion was more nuanced than simply a cost reduction exercise."