Block is working to more closely connect its Square merchant clients with its Cash App users through a nascent loyalty program the company considers one of its largest strategic opportunities.

The Neighborhoods program, which Block debuted in October, focuses on making menus from its local Square merchants available to Cash App mobile users so they can order food for pick up. Block has about 4.5 million sellers in its Square network and 59 million Cash App monthly users, according to its recent financial filings.

As Block mingles its sellers and consumer base within Cash App, it reaps payment volumes and customer engagement with each iced coffee or lunch salad transaction. 

For merchants, the Neighborhoods program represents a lower-cost sales channel and alternative to food-order behemoths like DoorDash, Grubhub and Uber Eats, part of Uber Technologies. Customers pay for their orders through Cash App.

“The holy grail is to create that two-sided network,” Mizuho Securities analyst Dan Dolev said Friday in an interview, noting that a program offering rewards for restaurant orders helps Block create “stickiness” with Cash App users.

Block has enormous ambitions for how the program can boost Cash App users and their monthly activity, while more tightly linking Square sellers to its ecosystem.

“From a longer term perspective, I think Neighborhoods is probably the biggest lever that we have,” Owen Jennings, Block’s head of business, told analysts May 7 on a quarterly earnings call. “I think the Neighborhoods program has the ability to just fundamentally change the size of our network and the trajectory of growth, but we’re in early days there.”

The loyalty program offering is incorporated into Cash App and encourages users to “follow” local merchants from whom they can order and earn up to 10% of an order total in a currency called Local Cash. Users can apply these loyalty funds to future purchases from Square sellers.

Block offers Neighborhood sellers a 1% processing fee for orders from Cash App, half of Square’s usual fee, and far below the 20% to 30% commissions that third-party food ordering platforms assess, Dolev wrote Thursday in a client report on the program’s potential.

Sellers can also market to potential customers through the app. “Neighborhoods offers software that gives the small businesses the same capabilities as having their own mobile app and the same benefits without complexity,” Dolev wrote. 

Food and beverage sellers represent the largest industry vertical by payment volume for Square, at about 35%, according to the company’s annual report in February. “Over time, this connected network supports local commerce and strengthens the relationship between Cash App and Square sellers,” Block said.

Neighborhoods had about 100,000 Cash App users who followed at least one seller, Jennings said on the quarterly earnings call.

Within Neighborhoods, Cash App followers provide about 10% of a seller’s gross payment volume after three quarters, wrote Block founder Jack Dorsey and Amrita Ahuja, Block’s chief operating office and chief financial officer, in a quarterly shareholder letter. In the first quarter, “followers transacted 50% more often than non-followers, and we’re giving Square sellers the tools to interact with and engage these critical customers,” they wrote.

For its report, Mizuho surveyed 150 Cash App users about their food ordering habits, with most turning to a restaurant’s app or website, or one of the dining platforms such as DoorDash and Uber Eats. 

About two-thirds (67%) of the Cash App users said they were “likely” or “very likely” to use Cash App for local merchant purchases if there was a loyalty program, according to the survey. About 11% said they weren’t interested in a loyalty program.

The survey results suggest “there is further room for (Block) in taking share and growing” Cash App’s active user base, Dolev wrote in the report.

On their earnings call, Block executives said they’d expanded Neighborhoods to sellers of about $320 million in annualized gross payment volume, with more merchants being added over time. The company is adding “hundreds” of sellers weekly to Neighborgoods, with “pretty clear line of sight to get to thousands of sellers per week,” Jennings said on the call.

Block spokespeople did not respond to an email Friday seeking comment on how many Square merchants are currently in the program or how many Cash App users have placed orders.