Block CEO & CFO Amrita Ahuja on Cash App, Afterpay, and the Future of Fintech

I'm delighted to be joined by Amrita Ahuja, the CFO and COO of Block, which is home to multiple FinTech brands you'll have heard of, including Square Cash App and Afterpay. Let's get right to it. Welcome. Thank you for joining from your fabulous offer. Thank

You so much for having me here, Anne.

Well, you just had a great earnings. We're going to go through that, but before we do, just set the stage for us with just walking through the multiple business units that Block has, whether that's Cash App Square and now Proto Rig, and then what's the thread that binds them together? Why do they all exist?

The thread that binds them together is our purpose, which is economic empowerment. We build tools, whether it's software or hardware, payments oriented commerce that empower people into the economy. We did that first with Square in our first founding moment 16 years ago. Square is the business that serves sellers and helps them start, run and grow their business. Most of our customers are small businesses, your corner shop, your local deli, and we have grown to now be a more global brand, but we started with that kernel of payments and then built a whole ecosystem of software solutions, financial services. You can now get a loan through Square Hardware Commerce Systems on top of that core payments functionality. We then launched Cash App more than 10 years ago now, 12 years ago now, which started as a peer-to-peer transmission app on your mobile phone for someone to pay someone their fend back for dinner or to pay towards a joint gift for instance.

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Now, similarly, we have a whole constellation of financial services and commerce tools. On top of that, you can invest money, you can buy a dollar worth of Berkshire Hathaway and Cash app, you can save money, you can deposit your paycheck, you can spend your money on our prepaid debit card, which has instant rewards, which is a very unique offering. And so we've built these two at scale ecosystems that now sit really on both sides of the counter, between the seller and oftentimes the buyer. And so there's some very unique things we can do with that over time. Finally, I'd also point to some of the newer, more nascent vets that we have, title, which serves artists to empower them into the economy in the same way that we would with a small business, giving them the tools to reach their fans in a direct way and launched their music to various sites. We're doing more and more to serve artists through our title platform. And then finally proto, which just more recently had its launch event to announce to the world that we're looking to bring competition, reliability, greater usability to the space of Bitcoin mining, all in an effort to help make Bitcoin everyday money. So those are kind of the four parts of our business, two that are mature at scale, two that are sort of up and coming and we're just nurturing now.

And from your CFO seed and you are thinking about capital allocation, how do you decide to invest in one of those business units versus another? What's the measure of success by which you hold them accountable as they come to you looking for more funding?

That's a great question. Because we have this portfolio of businesses, we had to think about an investment framework that could be agnostic to maturity to growth and margin profile to business model because we have so many different business models and revenue streams across our different ecosystems. And so we came up with an investment framework that we believe is a principled approach for how we make investments for our decision-making framework around investments. And it really has two metrics to it. It's very simple. We wanted to make it as simple and easy to understand so that not only could we communicate it to investors, but we can translate it to every single one of our employees. One is a customer facing metric and that's gross profit retention, and that's a measure of how existing customers grow on each of our platforms. So we would have a positive gross profit retention over a hundred percent gross profit retention if our customers are growing on our platform net of churn, each cohort of our customers.

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And that's something that we measure each of our businesses, square and Cash app and title buy, and we aspire, as I said, to have positive retention for our customers to be growing on our platform. The second piece of our investment framework is a measure of our own business and it holds our management team accountable to getting the returns on the investments we're making. And it's a rule of 40 framework, it's growth plus margin. Some businesses that are earlier in stage may grow faster and have lower margins. Some businesses that are more mature in stage may have a more steady state growth rate, but higher margins. And we think that this rule of 40 framework helps neutralize for things like that and helps give us a comparison against a more apples to apples comparison against all of our different businesses. So those are the two frameworks against which we measure ourselves at the block level as well as each of the components of our businesses.

I want to dig into Cash App a bit more, but before I do that, since you mentioned the rule of 40, if you were to read or listen to Alex Karp who's a CEO of Palantir, he would say that's sort of outdated that his company Palantir has blown past that metric so dramatically that the time has come to have sort of a new super level for software businesses. What do you think of that?

I think that we actually agree to some extent. We put our rule of 40, typically it's measured as growth plus EBITDA margin. We actually put it as growth plus adjusted operating income margin, which includes stock-based compensation. So we put it at a higher bar for ourselves. The 40 metric, we still call it rule of 40, but we want to make sure that we're not looking just at cash expenses, but we're looking at ongoing expenses in our business, which includes stock-based compensation. And I think that over time we aspire to be above rule of 40. It's not about just hitting it once. It's about achieving it year in and year out. We've set a target that we want to achieve it by 2026, and it's not again, just about 26, it's about the years that follow as well.

Let's do that. Digging into Cash App, you've referred to it almost as one of the more mature pieces of your portfolio, which is sort of an extraordinary thing to think about, right? When you think about how disruptive that business has actually been, talk to us about what the model has been to make sure that Cash App stays fresh, continues to gain share and continues along that positive gross margin retention trajectory that you've outlined as being so important.

Yes. So Cash App again started as peer-to-peer, but it's become so much more than that. It's becoming the Money app. It's revolutionary revolutionizing the operating system for how people manage their money. And the way in which we're doing that is we've got four core pillars to Cash app. We've got the social network driven aspect of money movement, that's the peer-to-peer part of our business. It's at scale over $200 billion annualized over the past year in money that we move on behalf of our customers to their friends, their acquaintances, their connections, and that's the core part of the business that has helped us grow very efficiently within Cash App at a 10th of the customer acquisition costs for some of the other platforms out there. The second core part of our platform is around commerce. Commerce is rapidly growing. The number of ways in which you can identify as a consumer ways to spend your money and ways to do it in a frictionless and easy way.

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Ways to spend your and get rewards for it, spend your stored funds or spend on Cash App Card are growing within Cash App and rapidly growing in a way that addresses what the next gen wants and that is growing at the pace of 21% year over year. The third part of our business is the banking tools. As I said, you can save money, you can get a line of credit, you can invest your money, you can buy Bitcoin within Cash App, buy and sell Bitcoin, and that is rapidly growing as well. We have 8 million actives across our ecosystem who either deposit a paycheck in Cash App or spend $500 a month. The majority of what they would spend on a debit card that's on a monthly basis now within Cash App and growing rapidly, also growing 16% year over year. The fourth pillar of the Cash app business is Bitcoin and we have enabled millions of customers to buy and sell Bitcoin $58 billion worth of Bitcoin on our platform since 2018. We were really a first mover in the Bitcoin space in a way to bring utility and awareness and education to Bitcoin through the years for Cash App.

We'll come back to Bitcoin in a little bit later when we talk about some of the newer areas you've been invested in. But just to stay on Cash App for a moment, there's one school of thought and it's just one school of thought. That Block has been the beneficiary of PayPal being asleep at the wheel for several years now, and PayPal's got newer leadership, it's come around with a new strategy and it's sort of gotten its act together over the last 12 months or so. Do you think that is a fair depiction of one of the advantages that Cash App has had to date and do you now see them being a more aggressive competitor in your space?

Well, here's the thing. Cash App is so much more than just peer-to-peer. We've built, as I said, commerce and banking tools on top of this base of 57 million actives, many of whom first come to us for peer-to-peer, but we've found ways to engage them, which has then driven a very strong business for us. As I noted, 8 million Deeply engaged banking actives an ARPU of $87, which grew 15% year over year. Customers have more and more things to do within Cash App well beyond the core peer-to-peer mechanism. So I actually don't think there's a pure play competitor for Cash up today.

Venmo is pretty close and ass similarly moving into banking. So what would you say to the consumer who says, should I use Cash Up or should I use Venmo? What would you say to them as, no, here's the reason to stick with Cash up. Here's the reason to come to us.

I think it's going to ultimately be about the value that we provide to them across the range of products that we offer. And ultimately we hope because their friends are on Cash App because there's more that they can do, there's more connections for them on Cash App. If you look at the United States, the middle of the country and the South have deep, deep connections for Cash App. The coastal areas have deep, deep connections for some of our competitors, but I think over time and those sort of viral loops change over time, one of the areas that we think we can truly be disruptive not only from a peer-to-peer perspective but also commerce and banking is with the next generation with teens,

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And this is a significant lever of growth for us. This is where you'll see us investing. We already have 5 million sponsored teen accounts on our platform. They are far more engaged than the overall base of customers. 80% of them have a Cash app card that prepaid debit card, 25% of them use Cash App pay, they're stored funds at Enterprise Merchants at Lyft or any of the number of big dominoes, big enterprise merchants that we have. These are very engaged next gen customers who are going to become the earners and spenders of the future. And I think that's a big part of how we grow even more above and beyond the 57 million monthly actives that we have today.

That's really fascinating. So let's hone in on that because this idea that you're capturing customers early and then you can keep that loyalty, you can keep building on them. When you do things like Track, I guess it's too early, but have you seen cohorts graduate through summer products that you've launched to certain demographics and see them graduate into using Afterpay for example, or into using other tools? Have you got that correlation available to you?

Absolutely. And this is one of the parts of the beauty of running multiple businesses. We see that trend in Square two when customers take four or more products on their retention, their stickiness on our platform, their willingness to stay on our platform increases meaningfully. We see that with Cash App too. We've seen over half of our team sponsored accounts when they reach the age of 18, go on to graduate to a full fledged cash app account. We think that number will go up over time as we offer more and more ways to move your money around Save spend your money within Cash App. And as I said, these accounts, these teen accounts sponsored teen accounts are incredibly engaged on our platform already. So when we see a customer take on, for instance, cash App borrow, this is a way that's a pretty meaningful product that helps customers bridge from smoother cash flows, bridge from pay period to pay period. We know so many Americans are living paycheck to paycheck,

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And so you can get a line of a hundred dollars or $200 worth of credit from Cash App. When customers take a product like Cash App borrow on, we see that their retention across the rest of the ecosystem for Cash App increases and that they end up doing more outside of Cash App borrow across all of Cash App. So we do see it as an ecosystem where one product can benefit another. As we think about growing with the next generation with teens, we want to make sure that we have all of the tools about how they are thinking about managing their money for the future.

Let's talk about Afterpay. It's been over two years since Block acquired the business. How's that integration progressed?

So I mean look, frankly I would say it was slow at first and now we are hitting our stride. It's been three and a half years and we now have a meaningful integration earlier this year between Cash App and Afterpay so that consumers within Cash App now have the ability to pay in four on the Cash app card or to get visibility to Afterpay Merchants within Cash App. And you will see us do even more with Afterpay within Cash App in the future. This newest product which enables you to pay in four on a transaction you've made on Cash App Card is growing incredibly quickly. We just launched it earlier this year. We already have crossed million account million user Milestone. And again, these customers who use these sorts of products become even more engaged across the rest of Cash App. What I spoke about earlier with some of our competitors being very strong on the coasts of the United States and maybe higher income demographics, actually Afterpay is very strong on the coast and with higher income demographics, it's a very complimentary demographic to Cash app. So the more we bring Afterpay into Cash App, the more opportunity we have to bring more customers into Cash App.

And one thing that I'm really curious about is what you are able to learn from the buy now, pay later data that's actually in front of you, and how are you using or are you using AI to offer users of any of your products highly personalized solutions? Are you using the equivalent of a supercharged credit report for any one of your users because you can now see their BNPR behavior on Afterpay to then think about what kinds of loans you would extend them for example, or what other kinds of products you could extend to them?

So look, we have used AI and machine learning for really since the inception of our business as a form of more efficient underwriting. First to enable sellers to get access to credit card payments. Many sellers were missing that core functionality and were therefore missing sales until Square came along and revolutionized the industry. Now we use AI on the backend as we think about eligibility and limits that we set and duration for loans, whether it's BNPL or Cash App borrow or Square Loans, those are the three core lending products that we have across Block. It's not generative AI and it's not necessarily linked to commerce. It's not necessarily the lending products are not necessarily linked to, well you made this purchase here and so therefore you're ready for a loan there. But it is about that customer's cash flows. It is about that customer's livelihood. Are they direct depositing with us?

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Do we see the regularity of their inflows and outflows? We actually have far better data, more comprehensive and real-time data than the traditional credit scoring companies have, which is why we think we are able to uniquely underwrite customers in a way that expands access. If you look at the same risk rating for a given customer, we are able to underwrite them at 30% plus higher rates than a company like Vantage Score. We know that 50 million Americans have thin credit files today. They're not able to get access to a credit card or to a line of credit. And they're alternatives are predatory things like payday lending, like pawn shops and what we're able to offer them is far, far less expensive and more transparent in the structure. And so that ultimately is based on our technology, is based on our AI and machine learning underwriting models that is able to responsibly expand access to important mechanisms of financial growth like access to credit. And that's something that we'll be doing more of on the other side of it, which is enabling commerce using ai. I think we're just at the beginning and that there could be more to come, but of course we'll do that responsibly from a privacy and data perspective.

And so given the edge in underwriting that you just described, what could be the next big thing in terms of the kinds of consumer credit that you are offering? Will it be auto loans, right? Is there a world in which you move into mortgages? What would be the next big move just given your data insights?

I think that there, there's more potential ahead of us, but we have plenty of growth with the sorts of loans that we've got today, which are relatively shortened duration. You can think of them more as working capital. This younger generation, gen Z millennials are moving away from traditional forms of credit from credit cards because they get you into a evolving debt spiral with interest rates that are hard to really frankly claw out of with after pay buy now, pay later with a square loan, with a cash app borrow. If you don't make a repayment, we don't give you another loan. We don't get people in trapped into debt cycles. And we're very transparent upfront about what our fee structure is. So we think that the sorts of loans that we offer are really the refreshed version of offering credit to the next generation. Is there a version down the road that looks longer term like a mortgage or an auto loan or a student loan potentially. But I think that there's plenty of growth left with what we're doing today, which is really about getting people through a given month from paycheck to paycheck, smoothing their cash flows and enabling them to invest in themselves.

Given all that opportunity, how are you thinking about acquisition activity? Is it hunkering down, focusing on organic growth and executing on what you described right now? Or are you still open to some kind of tuck in or even transformational merger if the opportunity came across?

I think we are always open. We remain opportunistic. We have a very strong balance sheet and we have the ability to do anything that we see ahead of us if an opportunity arises, but we don't feel the need. We have so many incredible brands and assets at our disposal between Cash, app Square, Afterpay, and so much growth potential. Oftentimes the harder thing is what we say no to versus looking for the growth opportunity. If you look across financial services and commerce, there is plenty of growth opportunity for us and really it's about execution. It's making sure our teams are organized against that opportunity and moving quickly, which is where I think AI comes in for us and enables us to prototype rapidly, get things in people's hands more quickly so that we can learn and double down on the things that really resonate for customers. And I think that's more of the focus for us as a company right now.

Let's wrap with talking about a pretty new part of your business and that's proto rig. Talk to us about the technology there and talk to us about the decision to go into this particular area.

So if you look at first of all, Bitcoin, we believe Bitcoin has the opportunity to become the currency of the internet to enable companies like Square and Cash App to be more global and to move at the speed of the internet. So what we've thought about doing from a Bitcoin perspective is contributing to Bitcoin, the Bitcoin ecosystem by creating more utility. So we have a buy sell feature which is incredibly accessible. You can buy a dollar worth of Bitcoin. We have a self custody feature bit key, which enables people to custody their own Bitcoin off of platforms like Cash App or Coinbase or whatever. And we have a mining solution now called Proto Rig, which is launching in the back half of this year. We already have our first customer lined up and many more to come through our pipeline. And what this enables the Bitcoin miners to do is have competition in a space that has been largely dominated by one company that's based out of China, that because of that market structure, these miners have not had access to reliable, highly efficient modular systems. And we think where we have a right to win here is that we have a stake in a world that includes Bitcoin B, we have tremendous software and hardware expertise and C, because of our hardware experience through Square have relationships with the TSMC of the world to be able to actually produce these high fidelity machines. It's a big ecosystem today we think that TAM is three to $6 billion across miners who are buying these sorts of rigs. And we are just getting started. We're excited to see where this heads over the next couple of quarters

And just clarify for us who the target customer is because if you think about Bitcoin miners, that could be anyone from big public companies who are solely in the business of doing that to the old sort of stereotype of the student hunkering down, getting their PhD and mining for Bitcoin in their spare time. Where on that sort of spectrum of potential clients are you targeting primarily?

We want to be able to serve all of them. We will start with the larger customers

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And I think that's a great way for us to train our systems and get as efficient as possible over time. We will have more products, we have more products on a roadmap that enable us to democratize mining. You could imagine that you have a space heater under your desk that is also mining Bitcoin for you at some point down the road or that that's located somewhere else in the global south. And so look, we always take the principle at block of we start small, we test and we learn. And what we're doing first is these rigs that serve more of the industrial miners over time. You can see this going much more broadly.

Final, final question for you. I've got to imagine, as you said earlier, that you do spend a lot of time saying no to projects that don't meet the bar. Is there anything you've said no to recently which was sort of on the cusp and you'd found it really interesting for whatever reason?

That's a really good question. Well, maybe one of the toughest decisions that we've had to make over the past couple of years is to focus cash app's business on the United States.

Oh, interesting.

And so we actually had some smaller bets outside of the United States and some things we were getting started and we decided to hunker down because the opportunity to focus on bringing more of our customers in the US to become more engaged and bringing more new customers in was so vast. And so we actually retrenched a few years ago for cash up in the United States, and I think it's one that potentially could change over time. Especially, I mean obviously we've talked about Bitcoin, but as you think about stable coins too to becoming a future platform for money movements especially globally and more efficiently at scale, I think that's one where that may turn out to a va no for now. And we revisit down the road.

Yeah, so much changing. And here we are, Rita Ahuja, CFO, and COO Block on the cutting edge of it all. Amazing seat from which to see it all evolving. Thank you for the great conversation. Please come back.

Thank you so much.

I'm Anne Berry. Thanks for tuning into After earnings, the show that brings you up close and personal with the executives behind the world's most interesting publicly traded companies. If you learn something today, don't forget to like, subscribe, and share with your friends. Upcoming episodes will feature CEOs and CFOs from Elf Beauty and many more come back. We'll see you soon.