Cash App Slowdown Highlights Shifting Consumer Behavior as They Focus on Essentials

Shares of Block fell more than 20% Friday (May 2), as slowing growth has prompted management to issue cautious guidance.

As PYMNTS noted in its own coverage, there’s a bit of brand repositioning in the works, and a strong embrace of artificial intelligence (AI) to fine-tune operations.

But within the data and the commentary, there’s tangible evidence of changing consumer behavior — not just what they’re spending their money on, but how they are spending that money.

The company’s supplementals indicated that in the first quarter, and as detailed across various metrics, the use of Cash App has slowed markedly, as the number of Cash App monthly transacting members using the digital wallet showed 0% year-over-year growth, remaining stagnant at 57 million users. Drill down a bit and the use of Cash App Card slowed, to 7% growth in monthly transacting active users slowed to 7% (at 25 million), where in previous quarters that growth rate had been in the mid-teens percentage points.

Inflows, which the company describes in its filings as the funds “entering the Cash App ecosystem” have slowed to 8% growth to $76.8 billion in the first quarter, down from the 17% year on year growth that had been logged in the year ago first quarter. On an individual basis, the inflows come out to $1,355 per transacting active in the latest quarter, at 8% growth, also down from double-digit growth rates.

The read across here is that at least for now, users are arguably being conservative about how much money they want to — or can — put to work with the digital wallet as entry point into the Block financial ecosystem. The slowdown has been enough to prompt several sell-side downgrades on Wall Street, as CNBC noted on Friday — and as one firm, Benchmark, wrote, “Stagnation in the number of active users of the app is even more concerning than users’ reduced spending.”

As for the reduced spending, “We saw changes to consumer spending behavior that we believe impacted inflows and Cash App Card spend,” CEO Jack Dorsey said on the earnings call with analysts.

“Tax refunds are an important seasonal driver of Cash App inflows. This year, we saw a pronounced shift in consumer behavior during the time period that we typically see the largest disbursements, late February and into March,” said Dorsey. “This coincided with inflows coming in below our expectations. During the quarter, non-discretionary Cash App Card spend in areas like grocery and gas was more resilient, while we saw a more pronounced impact to discretionary spending in areas like travel and media. We believe this consumer softness was a key driver of our forecast miss.”

The softness had been foreshadowed, separately, by PYMNTS Intelligence data that indicated 78% of consumers say they’ll cut back by buying less or buying cheaper goods.

We note that another sign of shifting consumer behavior comes through the data on buy now, pay later (BNPL): Block detailed in its filings that its BNPL platform gross merchandise value (GMV) reached $7.9 billion, growing 16% on a constant currency basis, which shows the appeal of paying over time. PYMNTS Intelligence data indicates that BNPL is gaining wider use among consumers, and especially among constrained consumers who encounter cash flow shortages. We found that cash flow-compromised consumers were 3.5 times more likely to use BNPL to make purchases.

But dollar volumes in the company’s historical data (a spreadsheet that accompanied earnings) shows that the overall BNPL GMV was $7.9 billion in the first quarter, down from the $10.3 billion in the fourth quarter of last year and $8.2 billion in the third quarter. The seller metrics offer the flip side of the coin, as Square GPV year-on-year growth slipped to 7.2%, down from previous double-digit quarters.

Block’s management expects growth to reaccelerate in the subsequent quarters of this year. The use of digital wallets at the center of daily financial life is an inexorable trend — we’ve spotlighted that, for example, 44% of consumers in the U.S. prefer to use those wallets over other payment modalities. The overall trend toward expanding financial ecosystems may be a long-term one, but it has its speed bumps.

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