Okay, we are going to get started now. Thank you everyone for being here. I'm Will Nance. I cover payments here at Goldman Sachs. We're delighted to have Amrita, CFO and COO of Block. Amrita, thanks for joining us. I'm going to run through some quick disclosures, and then I'm looking forward to the conversation.
Thanks so much for having me, Will.
Okay, during this conversation, Amrita may make forward-looking statements, including about Block's expectations for its financial performance that are subject to risks and uncertainties. She may also speak as to certain non-GAAP metrics. Please take a look at Block's most recent filings with the SEC for discussion of the company's risk factors and for reconciliations of non-GAAP metrics to their most directly comparable GAAP financial measures. Further, any discussion of our lending and banking products refer to products that are offered through Square Financial Services or our bank partners. With that, Amrita, thanks for joining us today.
Thank you for having me. Also, just thanks for dealing with my voice. Hopefully, we make it through the whole session. I'm in the process of losing it.
Oh, of course.
Let's go for it.
All right, we'll see what we can do here. All right, kicking off, Q2 was a busy quarter, and in our view, one of the strongest quarters in recent memory for Block. Over the past two years, we've been on this journey that, in my mind, started with some of your restructuring announcements. Over successive quarters, you, Jack, and the team outlined very specific strategies across every segment of the business, where you were focused on investing, including both on products and strategy, as well as profitability and financial targets. This quarter, it felt like we really began to see some of the progress show up in the results, particularly on the Square side.
To kick off the presentation, I was wondering if you could maybe do a State of the Union around the investments over the last 18 months, what has worked, and where there's still work to be done.
Great. I think your question laid out the long term very well, and I'll come back to that, but I'll start with the short term, which is that we sit here today very confident in our ability to deliver on the guidance that we provided for the back half of the year to accelerate our growth on gross profit growth in both Q3 and in Q4, and to exit the year in Q4 with 19% growth and 20% adjusted operating income margin. Since we gave that guidance a month ago, we've gotten questions about risk loss, given the ramping of our Cash App Borrow product in particular. Even if you look at gross profit net of risk loss, we expect to accelerate our growth in the back half of this year, both on an as-reported basis and net of risk loss.
Now, turning to the longer term, which is really the genesis of your question, there's really two key things that we've changed that are fundamental to our operating model and how we run as a business. One is our functional organizational structure, and two is how we orient our work and our priorities. First, we used to be a business unit-oriented structure. We are now a functional-oriented organizational structure, which means that we've elevated discipline excellence around engineering and design, which means that we can flex our workforce across the most high-priority projects, whatever brand they happen to be on, and which means we can connect the dots across our various brands from Cash App to Square to Afterpay to TIDAL to Proto. It gives us organizational excellence and adaptability.
The second thing is that we have roadmapped Block's priorities as a whole and stack-ranked each of our initiatives that ladder up to our overall strategy. We focused our strategy, and we created clarity around prioritization of the initiatives that ladder up to the strategy. What each of these two things has done organizationally and culturally over the past year is it's led to greater product velocity. That's what you see us delivering now so far in 2025, and what you should hold us accountable to as you look at the back half of this year and into next year. Just in Q2 alone, from a Square perspective, we launched Square AI, our latest handheld and sometimes Square, our latest hardware, I should say, and sometimes Square Handheld. We released some new transformational features for Square Online.
From a Cash App perspective, we went in four months from inception to prototyping to launch on Cash App Pools, which is our newest peer-to-peer feature within Cash App, and launched Tap to Pay for Cash for Business. The product velocity that you see across our business should be accelerating on the back of our organizational and prioritization efforts. It's not just about product velocity. It's also about distribution. You'll see us do more as we invest behind strong returns, and as we experiment in new ways across our brand and performance marketing campaigns across the business. It's this product velocity and distribution which ultimately compounds to share gains and growth over time.
That's great. I appreciate the update. I know there's been a lot of focus, but it sounds like things are truly accelerating in the business across the board. Before we go any deeper, I did want to touch on the current environment. I know everyone's eager to hear about what your data says about the state of the consumer. Is there any real-time insight you can provide on the performance of the business, the health of the customer base, and just remind us what you're expecting in the back half of the year from a macro perspective?
Sure. From a macro perspective, obviously, we're very watchful, and we did embed in our guidance that acknowledgment of the dynamism of the backdrop of the environment in which we operate. What we've seen is resilience across our ecosystems. Through Q2, from a Square perspective, we saw acceleration from Q1 into Q2 on Square GPV, 7% to 10%. Importantly, in some of those key discretionary verticals that we look at, food and beverage and retail, we saw resilience as well, with strong same-store growth and retention behind each of those two verticals. From a Cash App perspective, we look at things like inflows per active and card spend, and we saw inflows per active be relatively steady from Q1 to Q2 at 8% year-over-year growth, but actually accelerating.
If you look at, and we've talked about this before, some of the moderation in growth that we saw in February and March, we accelerated out of that into Q2 around inflows per active. Importantly, when we look at other key drivers of our business, so our underwriting models, repayment around loans, like Square Loans, Cash App Borrow, or BNPL, we've seen steady and healthy repayment rates. For the investments that we make from a go-to-market perspective, we've seen strong returns on our marketing and sales investments behind our business. We have real-time data that we are managing our business behind. To the extent we see anything shift around repayment rates or ROIs from an investment perspective, we have the ability to shift things to protect our business and obviously continue to serve our customers responsibly.
Yeah, that's great. Let's double-click on the GPV trends in Seller, particularly in the mid-market and the food and beverage, because I think about those two categories specifically as an area where distribution really matters. I know distribution has been a huge focus for the company across field sales and across reseller arrangements, both here and abroad. When you look at the improved performance, what are the signals you're getting from the market that are leading you to guide to continued acceleration in the back half? Can you speak to the contribution from some of the new channels that you have?
Sure. Just philosophically, when you step back, the approach that we're taking that's different this year, really over the past sort of 12 months or so, is to expand and broaden the ways in which we go to market for the Square business, which puts us in front of incrementally new sellers, a broader set of sellers than we were reaching before. This product velocity behind our ecosystem gives us a chance to win more of those sellers, which leads to share gains and, again, leads to compounding growth. There are three key drivers of Square GPV: new customer acquisition, seller retention, and churn. We've seen healthy and accelerating growth from a customer acquisition standpoint and across really the three key metrics.
From a customer acquisition standpoint, what we saw in Q2 was the strongest dollar-based new volume added that we've ever had as a company, as we attracted more sellers into our ecosystem, and the highest growth rate we've seen since 2021. From a sales perspective, specifically within new volume added, just looking at the sales channel, the first half of the year, we saw 20%+ growth rates, and we expect to exit the year at 40%+ growth rates. It's still a smaller portion of overall new volume added relative to our truly differentiated strength, which is self-on-board, but it's one that we're leaning into as we see strong marginal returns across our sales force, from telesales to field sales. Partnerships is another key piece of our sales ecosystem where we're delivering on higher leads, larger leads, and above our targets into that sales team.
We're seeing strong conversion of those leads when our sales team engages with them. From a retention perspective, we're seeing, to your point, some of the key verticals for us: food and beverage and retail, strong retention both on the back of the investments we've made from a product standpoint so that we can gain greater share of wallet and also from a macro perspective. From a churn perspective, we saw in Q2 the lowest churn that we've seen since mid-2023. We're pretty encouraged about those three key drivers of our GPV growth rate and ability to accelerate from here.
Great. One item I did want to ask about that we got some questions on post-earnings was the contract renegotiation you talked about that led to about a 2% gross profit in the seller business. I think on our math, it worked out to about $80 million, kind of on an annual run rate. Can you help investors understand just the nature of that change in the relationship with your processor and kind of what you're getting out of this to justify the cost? Do you view this as sort of like an NP positive change?
Sure. First, I would say the changes like this actually happen beneath the surface regularly for a business of the size and scale and magnitude of ours. It's more noticeable, and we called it out from a Q3 perspective because of the investments that we're making elsewhere in the ecosystem around hardware. On the back of the strong launch of Square Handheld and on the back of increased customer acquisition, we're leaning into this really successful and important distribution channel for us with hardware. You're going to notice some of that gross profit to GPV differential, which is why we've called out this one processing partner piece. What happened purely is that we were holding more than was required from a minimum cash perspective with that processing partner.
In order to improve our operational flexibility, we brought that cash back from an interest income perspective, but it has partial offsets from a gross profit perspective. Net ROI is beneficial to us, both from a flexibility standpoint and from a true economic standpoint with interest income. Ultimately, what we're focused on as we think about gross profit and GPV longer term is driving incremental variable profit dollars into our business. Those are some of the sort of healthy metrics that we're looking at and we're seeing today is that even as we ramp with larger sellers in the U.S., we see new profit-added dollars are actually higher than new volume-added dollars, which means we maintain pricing power and the ability to cross-sell our 30+ products into the seller base. Those are kind of the true health of the underlying ecosystem.
Those are the sorts of metrics that we're most focused on.
Got it. Just to follow up on that last point you made, once you lap the headwind, investors have thought about this business as sort of a spread to GPV growth. Is that still the right framework? Do you think that Square will still maintain a positive gross profit spread if the success you've had recently in mid-market and larger sellers continues?
Yeah, I mean, look, I think we'll have more to say about this at our Investor Day later this year. I think ultimately there's some puts and takes to think through. One is that we're going to be growing our business with larger sellers and with sellers in markets outside the U.S. Those are two of our top strategic areas of focus for the Square business. Those are two areas where we're seeing outsized growth, 25% GPV growth, 20%+ GP growth in markets outside the U.S. That is going to come with lower take rate. As long as we're driving incremental variable profit dollars because we're seeing incremental sellers through those channels, we're deliberately making that decision in those trade-offs. It drives incremental profitability into our business.
The flip side of it is that as we see larger sellers, as we bring more sellers onto our platform, as we broaden the product offerings that we have, we have the ability to cross-sell more products into these sellers. SaaS attached, banking attached should benefit gross profit in a way where it obviously isn't reflected in GPV. Those are some of the puts and takes as we think about gross profit relative to GPV, but ultimately guided by the true economics of incremental profit dollars into the business.
Great. Just last one on the seller business. You've been making a lot of investments in distribution. You just shared some of the results of those investments. Where are you in the build-out of things like field sales and partnerships? What are some of the goalposts as we progress over the next 18 months that we should be looking out on the distribution side?
I think we're still early. I think what we're seeing today is that the marginal investments into our field sales and telesales team is not diminishing in returns. They're coming in at the overall blended targets that we have from an ROI perspective, which means that we have a lot more room to run here. I think we're in the early days. I think you'll see us do more, but I also think you'll see us be disciplined to the extent that we see any shift in those returns or any diminishing returns or a need to shift to focus on A or B market over here instead of C or D. We're going to leave ourselves adaptable and nimble to do that. There are really three key pieces of the strategy from a distribution perspective. One is sales, which we've talked a lot about.
The other is partners, where we have had incrementally new partners over the past year than we've had in many years, frankly. Whether it's the vertical-specific partners like a US Foods or Cisco or SalonCentric, or it's horizontal partners like T-Mobile. We've just started launching with ISOs, first outside the U.S. and then this year in the U.S. as well. We're really excited by the leads that we're seeing, the size of the leads, and the overall on an individual basis, on a per seller basis, as well as the overall volume of leads that's leading into our sales team. The third key piece, which you'll see more in the coming weeks and months, is around the brand refresh for Square, which we're really excited about and you'll hear more about at Square releases next month.
Great. Looking forward to that. Let's pivot over to Cash App and starting with the bank-to-base strategy. You have seen a noticeable tick up in direct deposit growth year to date. I think something like 300,000 year to date in July versus 500,000 for the full year of 2024. I hopefully got those numbers right. You also shared at earnings that the cohort of customers using Cash App for primary banking services is much larger than the 2.8 million of direct deposit that you have, 2.8 million of direct deposit that you have. What are you doing to deepen the relationship with customers and drive primacy? What else can you do to tailor the products to more kind of banking type use cases?
Yeah, first let me say we're excited about the recent growth that we've seen and have continued to see on paycheck deposit actives. There is so much more that we can do to drive growth there and drive deeper engagement. As we talked to our customers, what we saw is that many of our customers, over 40% of them, don't earn a traditional wage that comes via ACH rails. Many of them are independent earners or gig economy workers or have their first job in the neighborhood. What we see is that many of those customers actually considered us to be their primary bank but weren't showing up in the paycheck deposit active number. We looked across the engagement patterns on their platform, inflows, outflows, transaction movements, themes, and patterns around spend behavior.
What we saw was that effectively we could consider someone a primary banking active if they were either a paycheck deposit active or they spent at least $500 through Cash App Card or Cash App Pay on our platform. Those customers are about 8 million monthly actives as of the end of Q2, growing 16% year over year. Those customers have three times the ARPU, over three times the ARPU of the overall base. The overall base is about $87 on an annualized basis in Q2. For these primary banking actives, it's over $250 in ARPU. They're transacting effectively on a daily basis within Cash App, 40 transactions in a given month from a spend perspective within Cash App. They're highly engaged. Cash App is top of wallet. They really consider us because the overall spend on average is about $900 for customers on their debit cards.
We're top of wallet. We're the majority of their debit spend in a given month. You're going to see us now that we've really segmented our customers to truly understand both what they're doing within our platform and how they consider us to be their primary bank, you'll see us do more with this customer base in terms of providing the full suite of banking packages, from overdraft protection to free ATM fees, from savings, the full package of banking benefits that we have for this customer base. It's not just tied to being a paycheck deposit active, but also to the spend thresholds within Cash App. You'll see us do more with that.
You'll also see us do more within the app itself from a design perspective within the money tab so that people understand the full suite of commerce payment types that we have across Cash App because of the strong ARPU retention and engagement that ultimately we're seeing it's driving within Cash App.
I guess, on that, because it sounds like with the segmentation work you've done, that is now the primary focus for direct deposits. How do you think about an acquisition strategy for that, just knowing how difficult it is to bring over primary bank relationships? I guess, have you seen any evolution in your thought process around kind of penetrating the base versus acquiring direct deposit customers?
We think both are important. We think growing the overall base of actives is our top priority from a Cash App perspective. Ultimately, network density, which is the number of connections you have within Cash App, drives stronger retention and stronger lifetime value for customers. Products like peer-to-peer help us build upon that network density within Cash App. Once you're using Cash App regularly at that top-of-funnel level from a peer-to-peer perspective, we then have a chance to make sure that you're aware through in-app messaging and otherwise of all the other features that we have, from investing to saving to spending. That's how we see people starting at top-of-funnel from a peer-to-peer or instant deposit perspective, but then working their way through with this full suite of products that we have.
Once we see the regularity of their inflows and outflows, we have the ability to make them eligible for other products like Cash App Borrow within Cash App.
Yeah, no, that makes sense. Maybe we zoom out a bit and talk about the inflows framework and MAU growth that you just referenced. I want to talk a little bit about the importance of the overall size of the network. You've used the inflows framework to talk about the growth in Cash App. Over the last 18 months, it's been much more of an inflows and a monetization kind of algorithm. Can you talk about how you think about an inflection in MAU growth? Do you see that mix shifting a bit more towards the user growth in the near term?
Jack and Owen and our full organization are fully focused on Cash App MAU growth, along with Square GPV growth. These are the two sort of North Star metrics for us as a business. The three key strategies that we're going to deploy to drive growth from an MAU perspective are driving increase. I'll go through each one, but they're driving network density, increasing our spend in high ROI ways across marketing, referrals, and incentives, and growing with the next generation of customers. From a network density perspective, this is, again, when we see customers with four or more connections within Cash App, we see a step change from a retention perspective and from an ARPU perspective. Products like Cash App Pools, which is something that 60% of U.S.
adults have to do, is group their money together for an office gift or for a birthday present or a baby shower. Cash App Pools offers a tremendous opportunity to enhance the overall peer-to-peer network in a way that is unique to our ecosystem, and also to do it in a way where we can bring out-of-network funds in by opening up Cash App for the first time to Apple Pay and Google Pay as a funding mechanism in the Cash App Pools. We get to both bring more functionality on a peer-to-peer viral network effect-driven aspect in Cash App and expose people who maybe don't have Cash App yet or aren't using it regularly to increase functionality within the ecosystem. We also launched Tap to Pay on Cash for Business, another way to expose people who don't yet have Cash App to the overall ecosystem.
That's an element around network effects and network density. From a marketing perspective, in July, we launched a relaunch or a rebrand of Cash App effectively with our Cash In campaign, which is both a brand campaign as well as performance marketing tied to specific products to bring visibility to products like Cash App Card, with 26 million monthly actives and strong spend dynamics, a product that we know has a very strong distribution surface against which we attach our banking products and products like Borrow and Paycheck Deposit Actives, and referrals and incentives, which are knobs that we are turning on a weekly, daily, monthly basis based on the returns that we're seeing as more customers come into Cash App and as we're able to deepen them in the engagement funnel.
From a next-gen perspective, you know, Teens is a product, the Families offering is a product that we launched some years back and are now going to have renewed focus, energy, and investment behind. We have 5 million sponsored accounts in Cash App today, and 80% of those accounts are Cash App Card actives. 25% use Cash App Pay. These are high product market fit products for our Teen customers. In the coming weeks and next couple of months, you're going to see us do more both from a product and a marketing perspective with these future spenders and earners of America that we're excited to grow with.
OK. This year, a big topic of conversation has been the ramp in Cash App Borrow. This is primarily coming from a significant expansion in your geographical reach, coupled with a step up in economics from using your own bank instead of partners. Where are we in that process? For those who are less comfortable with the idea of your credit exposure stepping up this much, what can you share about the performance of the loans and the underwriting so far?
Yeah, I'll come back to this, but I think it's a very unique product and very differentiated relative to other lending products. First, just to talk about the year, the first half of the year was not about the new states, actually about the TAM expansion. It was more about traditional sort of credit underwriting improvements that improved both from an eligibility standpoint as well as a credit limit standpoint. Through those improvements, we were still able to nearly double our Cash App Borrow origination in the first half of this year, getting to an $18 billion annualized run rate in Q2 and about 6 million monthly Cash App Borrow actives.
The back half of the year is about not only continued credit underwriting improvements, but also launching Cash App Borrow in those 20 plus states that we weren't yet in through the migration of Cash App Borrow from a partner bank into our own bank, Square Financial Services. We're super excited about this. We're going to be extremely deliberate and ramp into those new customer cohorts in those 20 plus new states. What we've seen so far is encouraging. That's really what drives the acceleration in the back half of the year. Now, from a credit underwriting and risk perspective, you know, what's truly unique about this product is it is a cash flow management working capital type of product. Small dollar loans, typically about $100, $150 on average, that last for less than four weeks.
A dollar turns about 15 to 17 times for a Cash App Borrow loan in a given year. The annualized net margin on these loans, as you see in our investor presentation, about 24% on a trailing 12-month basis as of Q2. Our target is above at 20%. These are high ROI, high ROIC loans for us. They're loans where we have the ability to determine eligibility. To the extent that we see anything that looks different from a repayment perspective, we have the ability to pause and reevaluate or retrench as we expand these loans in the coming months.
Can we double-click a little bit on the use of the bank subsidiary? Because it seems like that's a really differentiated competitive advantage for Block overall across both segments. Where else do you see opportunities to lean in there?
We're very excited about the roadmap ahead for Square Financial Services. Today, the bank has three products in it: Square Loans, which is obviously a product we've been operating for 10 years, but about five years now within Square Financial Services, Square Savings Account, and now Cash App Borrow. When you think about the future of the company from a lending, acquiring, or deposit perspective, Square Financial Services will likely have a hand to play. We also have future optionality, even if you think longer term or about zero to one products, products that we don't even have in the company yet, like stable coins as an example.
We have unique capabilities and differentiators, a truly unique asset with Square Financial Services that we can bring to bear as we think about all of those things. Square Financial Services, from a strategic perspective, brings us a direct line to our regulators as we think about what's strategic to our business. It brings us the opportunity to be more efficient in how we serve these customers. It brings us the opportunity to bring a number of different products that are sitting on a partner stack into our own, which ultimately gives us self-reliance and resilience if we think about the overall supplier network for Square and for Block.
Great. OK. Turning to Afterpay, another detail you shared was the ramp of the postpaid BNPL this quarter. Could you just double-click on what this product is and where you are in the evolution of the combined Cash App and Afterpay offering?
We're really excited about this one. We launched it just in February. This is the ability, if you're one of those 26 million monthly actives in Cash App Borrow, and we've determined you're eligible. There's only a subset so far. We're still ramping this product. If we've determined you're eligible, you can go into your transaction history and retroactively post-purchase or pay in full. Let's say you bought a $100 pair of jeans. You can get $75 back that you then pay off over the next four weeks. What we have seen so far, just in these first six months of operations, is incredibly encouraging.
We're able to take the same infrastructure that we built, the same internal credit scoring that we built for Cash App Borrow, which, by the way, if you compare it to traditional credit score mechanisms like a Vantage Score, we are able to underwrite 38% more customers using our internal credit score than a traditional credit score company would do, like a Vantage Score, at the same loss rates. We are able to expand access to credit through products like Cash App Borrow or post-purchase BNPL on Cash App Card and able to do it responsibly with sustainable economics for us.
With Retro, what we've seen is actually through, in I think the latest stats we gave were as of July, a million monthly actives and a $2 billion annualized origination rate as of July, which for us, from an origination and margin perspective, are well ahead of where Borrow was at a similar point in its life. We're able to learn and compound those benefits of the learning across each of the different products that we have. We're really excited with what's to come as we continue to ramp Borrow in the back half of this year. I think maybe 2026 is where we see even more material benefits from it. As we think about Cash App Card, revolutionizing it to become a next-gen credit card with transparency and upfront understanding of fees that don't trap our customers in debt spirals.
Great. OK. One of my favorite Easter eggs of this past quarter's shareholder letter was the disclosure around Cash App Commerce volume. I think it'd be helpful just to remind us what's in that number. Secondarily, how are you thinking about that as an ongoing disclosure and as a way to measure the health of the Cash App business?
Yeah, commerce is one of four pillars for Cash App: peer-to-peer, financial services, commerce, and Bitcoin. If you look at the trailing 12 months, we had $183 billion in volume across our commerce pillar with 16% growth year over year. This includes things like Cash App Card, Cash App Pay, BNPL, Cash for Business. In fact, the growth rate is much higher if you exclude Cash for Business. The core products that we're investing behind enable our customers to manage their cash flows and spend where they see fit, and we are where they want it, where they are, where they need to be at the point of sale. We're incredibly excited about the commerce growth for Cash App for a couple of reasons. One is it's the distribution surface into which we will connect our two ecosystems. Commerce is the pillar that unites Square and Cash App.
I think you'll see more in the next couple of months around Cash App Local and how we're able to drive incremental demand of Cash App consumers into Square sellers. That's a unique superpower that we've been testing, but we're really excited to bring to bear at far greater scale in the months ahead. The second piece is that commerce is directly connected into financial services. As I spoke about earlier, as we think about those primary banking actives within Cash App, we think that there are unique benefits that we can provide people who are deeply steeped in our commerce motions through our banking platform, which can then drive further growth in our banking platform so that the growth of one pillar gets growth in another pillar.
That's great. In the last couple of minutes, I did want to ask on the Proto initiative. I think you said in the shareholder letter that the guidance includes some contribution from Proto. Could you talk a bit about how much you're expecting that to contribute and how you think about forecasting the sales of that business?
Sure. We'll have more to share about Proto at Investor Day. What I will say is that first, we're very excited about this business. We just had a launch event last month where we showcased how our mining rigs are going to be truly differentiated relative to what's out in the market today. That's through modularity, where customers can really have a more cost-effective solution by replacing only pieces versus an entire rig as needed. That's through reliability. That's through customer support, so that the overall total cost of ownership for these mining rigs, we think, will be truly differentiated relative to what's out in the market today. What is that market today? We size it as about a $3 to $6 billion TAM on an annualized basis for Bitcoin hardware supply. It is very much concentrated in one supplier that's based out of China.
As we talk to these Bitcoin miners, we see strong demand for differentiation and competition in the space. We already have a customer lined up and aim to intend to be shipping those rigs in the back half of this year, which in part contributes to our acceleration in Q4. We have a long pipeline of pilot customers that we're experimenting with in the next couple of months as well. We'll have more to share, but we're very excited about Proto.
That's great. Just like a more clerical question, where will that show up in the P&L as we evolve the two segments? Is it Cash App or?
In our other segment.
Other segment. OK, great. All right. I think that's all the time we have. Thank you so much for spending the time. Really appreciate the opportunity to have a conversation.
Thanks, Will.