- Key insights: Block added 30,000 sellers to what it calls "Neighborhoods," a proprietary distribution network that connects Cash App users with Square sellers.
- What's at stake: Neighborhoods is a key initiative Block CEO Jack Dorsey first outlined in 2024 as a way to meld the company's then-separate business lines to achieve network effects. It's also designed to give merchants more reasons to stick with the company and capture more Cash App users at low costs.
- Forward look: The company hopes to eventually give merchants the ability to communicate with their followers and to enable Cash App users to browse local Square businesses.
Block's long-awaited Neighborhoods initiative is officially off the ground with the addition of 30,000 new Square sellers onto the platform.
"Neighborhoods" is a proprietary distribution network and a key initiative Block CEO Jack Dorsey
The idea is to connect Square sellers with Cash App users to drive incremental sales, so that each feeds the other.
"Proprietary distribution channels are ultimately what differentiate incredibly successful tech companies from the average tech company," Owen Jennings, executive officer and head of business at Block, told American Banker. "Our goal ultimately is just to connect neighborhoods together globally."
And developing a robust network is critical to adoption of any payment system, according to Aaron Press, a research director at IDC.
"If there aren't enough payers and payees, the system fails," Press told American Banker, noting that creating that network effect often requires incentives for adoption.
Cash App users can earn local cash equal to 10% of their order subtotal, up to $10 per order, on qualifying purchases with participating sellers that they can use at a later visit. Cash App is funding those cash back rewards for an initial 12-month period.
"Consumers need a reason to try a new payment initiative, and cash back (especially 10%, which is pretty generous) is a strong incentive," Press said. "It's even better when a coalition loyalty program like this makes it possible to earn rewards at more than one merchant. And nothing encourages merchants to change their acceptance strategy more than something that can drive new or more loyal customers."
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The challenge to continued scale will come when the incentives shift from Block-funded to merchant-funded.
"Once that ends, merchants will be on the hook to continue to use the program, reduce the incentive, or let it end," Press said. "Block is hoping to create consumer habits around using CashApp that will stick regardless of the incentive structure and use that success to drive Square hardware and service adoption."
Indeed, connecting Square sellers with Cash App users has multiple benefits for Block, including giving merchants more of a reason to stick with Square and capturing more Cash App users at low costs, Jennings said.
"We're turning every Square point of sale, every piece of Square hardware, into an upsell into Cash App," Jennings said. "About half of [the buyers enrolled in the program] were already actively engaged on Cash App; about half of them are not. So it's a massive acquisition channel for Cash App and obviously incredibly low cost."
Jennings also said that he expects to eventually see higher retention from Square merchants because the program becomes "such a valuable proprietary growth channel for sellers that churning off of Square becomes almost imaginable. I would also expect to see stronger win rates."
The rewards system does compete with other loyalty providers, such as TapMango, which also works with Square and allows merchants to offer similar rewards but without the Cash App integration, Aaron McPherson, principal at AFM Consulting, told American Banker.
"The reliance on Cash App may limit the network's reach because consumers might not be accustomed to using it for everyday purchases," McPherson said. "On the other hand, a program like this would tend to drive usage to Cash App, which benefits Block from that perspective."
