Snapchat users can now enter an amount as part of a message, such as "here’s $15 for the present", and the app will recognise the amount. A green dollar button will appear for users to authorise and send the payment.
For now, Snapcash is only available to users in the US aged 18 and over, who log their debit card details with Snapchat.
Square will be responsible for storing users’ card and transaction details – they will not be stored with Snapchat.
Square operates a similar service, Square Cash, which allows users to send money via app or email. Users who enable Snapcash will, at the same time, be creating a Square Cash account.
The news may prompt security concerns given Snapchat has suffered several security breaches this year.
The first took place in January after hackers exploited a flaw with the service and published 4.6 million usernames and phone numbers.
The second was an indirect breach, after hackers exploited third-party services to access Snapchat images and chat logs which should have been deleted.
Since then, Snapchat has cracked down on unauthorised third-party services. It has also updated its terms of service after the launch of Snapcash.
It isn’t clear whether the tie-up will be permanent, nor whether Snapchat is taking a cut of any of those transactions.
It is more likely that Square will benefit financially from the deal by taking a processing fee for every transaction.
Should Snapcash extend to the UK, Snapchat would need to find an equivalent payment partner, since Square is only available in the US, Canada and Japan.
Snapchat has yet to publish financials or even user numbers. The service is valued at $10bn and is thought to have 100 million monthly active users, according to the Wall Street Journal. The company is in the early phases of monetising its service and launched its first ads in October.