Square (NYSE:SQ) has built two successful ecosystems in digital payments. Its original seller business enables small and medium-sized businesses to accept card payments with a simple fee structure. Its Cash App ecosystem for consumers has quickly expanded beyond a peer-to-peer payments app to offer various services for the underbanked. Both are growing quickly.

At a recent investors conference, CFO Amrita Ahuja said the company thinks about the growth of both ecosystems on three horizons. Understanding how Square plans to grow the business over time can give investors a better understanding of why Square is making decisions like increasing its investments in sales and marketing and whether or not those investments make sense for the long-term success of the business.

A person paying with a card at a Square terminal at the register

Image source: Square.

Horizon 1: Scaling the ecosystems

Ahuja says the first horizon, the one it sees itself in currently, is scaling the ecosystems. Investors might say Square has reached scale with over $100 billion in gross payment volume across its merchant network and over 15 million users on Cash App. 

But Ahuja thinks there's still a long way to go. At Square's investor day in 2017, former CFO Sarah Friar said Square has a total addressable market of $3 trillion in gross payment volume in the United States alone. And Cash App's biggest rival, PayPal's (NASDAQ:PYPL) Venmo, has about 40 million users.

It makes sense that Square is reining in short-term profitability in exchange for user growth on both the seller and Cash App ecosystems. Square is investing in greater brand and product awareness for its seller ecosystem while reducing the prices for its high-end hardware aimed at larger merchants. Meanwhile, it continues to add new Boosts to its Cash Card product to draw in new Cash App users, and it most recently started offering commission-free stock trading, which it will also use as a customer-acquisition tool.

While these efforts will negatively impact short-term profitability, they should help accelerate growth in gross payment volume and Cash App usage relatively quickly. Management expects to see the increased investments in marketing result in GPV growth by the end of next year.

Horizon 2: Optimize cross-selling

Square offers its sellers about 20 products besides simply processing physical card payments. That ecosystem of services is a key differentiator for Square when it comes to attracting sellers. It can use multiple products to offer better pricing to merchants, and when a merchant uses multiple products from Square, they're more likely to remain a Square merchant.

On the consumer side, Cash App has a half dozen or so features and products. The suite of products makes the app more engaging, and customers are more likely to use other features as well. Management pointed out during the company's third-quarter earnings call that users who trade bitcoin were two times as likely to use Cash Card, for example.

Square recently redesigned Cash App with tabs for each of its main products. Management believes the redesign will produce greater visibility for each service and ultimately increase attach rates.

Horizon 3: Connecting the ecosystems

Once Square achieves scale for both ecosystems, there will be a lot of opportunities for the company to connect Square merchants and Cash App users. Ahuja gives the example of loyalty programs.

Indeed, Square already has some overlap in its ecosystems. For example, merchants can use Square's payroll service, and employees can receive their pay instantly via Cash App. Additionally, merchants can get an instant discount at other Square merchants when using their Square Card -- a product inspired by the Cash Card.

Ultimately, having a stake in both sides of the network -- the buyer and the seller -- will give Square lots of opportunities to facilitate commerce. Those opportunities to bring buyers and sellers together will not only produce new revenue growth for the company, but they should also result in greater customer retention.

Non-linear "horizons"

It's important to note that the horizons Ahuja laid out don't have to come sequentially. As mentioned, Square is doing things to improve its cross-selling as well as linking merchant accounts to Cash App users.

But Ahuja believes its ability to grow in each horizon is stronger after accomplishing the previous horizon. Right now, it's able to grow its user base efficiently, and that's what it'll focus most of its efforts on in the near term. With sufficient scale and a diverse user base, it'll be able to efficiently introduce new products and cross-sell them to the user base. And when users are using multiple products in Cash App or its seller ecosystem, there will be more opportunities to find overlap and connect merchants and consumers.