Marqeta, Inc. (MQ) Earnings Call Transcript & Summary

Okay. If you can take your seats, we're going to get started. Great. Welcome, everyone, to the afternoon session of the first day of the 25th Annual Credit Suisse FinTech Technology Conference. I'm Tim Chiodo. I'm the payments processors and fintech analyst here at Credit Suisse. We're very happy to have with us today the team from Marqeta, including CFO, Tripp Faix. Tripp, thank you for being here.

Thank you, Tim.

All right. Excellent. We got started a minute or so late, so I'm going to just jump in here in rapid fashion. We'll start with the general introduction type of question. In terms of -- for those that are newer to the story, and I know there are some in the audience that fit that mold, could you just talk a little bit about the company, the segments, the value proposition, TPV, et cetera?

Yes, absolutely. Thanks, Tim. For folks who I haven't met yet, I am Tripp Faix. I'm Marqeta's Chief Financial Officer. Marqeta is an open API issuer processor. Very simply, we help companies issue cards. Our primarily -- or excuse me, our primary verticals are digital banking; BNPL, or buy now, pay later; on-demand delivery; large technology companies; and large FIs. In Q3, we processed around $28 billion of volume for the quarter, and that represented around 60% year-over-year growth, so doing well.

It's a great kick-off. And also for the audience, I just want to mention, we have plenty of pre-scripted questions, of course, but there are microphones here in the front. And when we get to the Q&A, please just step up to the microphone to ask a question in the aisle over here. Okay. Great. So Tripp, that was a good segue. You mentioned some of the verticals that you operate in. One of those that's clearly topical for investors is the buy now, pay later vertical. You have clients that are many of the largest brand names within that segment, Klarna, Affirm, Afterpay. Maybe for those newer to the BNPL linkage to Marqeta, you could talk about Marqeta's role in buy now, pay later transactions.

Absolutely. As you mentioned, we work with Klarna, Afterpay, Affirm, ZIP, Sezzle, a lot of the major buy now, pay later customers. We can work with them in multiple fashions, whether it's an instant issuance of a virtual card to allow that frictionless, delightful product experience for that end consumer or we can do direct integrations with a large retailer. So we can choose multiple paths. Buy now, pay later has witnessed a tremendous amount of growth, certainly on our platform. I think in Q3, they grew over 300% from a net revenue perspective. And in Q2, it was around 350%, so tremendous growth. And ultimately, what customers value from Marqeta and from the platform is speed, speed to market. We can do those direct integrations with large retailers in days. We can help them instant issue a card and get a program up and running quite quickly. We are certainly known for that. And the breadth of our APIs, we have hundreds of APIs on our platform, I invite you all to go take a look, enables developers to become familiar with our capabilities. Whether it's reading the documentation or in the sandboxes, very much so, we are a platform built by developers for developers.

Tripp, thank you. You mentioned 2 numbers in there, 300% and 350%, in terms of your growth in the buy now, pay later segment more recently in the last 2 quarters. That's clearly higher than the GMV growth within your large brand name customer base. Can you talk about how you've been able to grow faster than the segment, if you will?

Sure. I'd say part of it is our ability, not only speed to market, but also expand with our customers. We've highlighted, as an example, Klarna, helping them come to the United States. And we've certainly done that with other customers going abroad. We operate in 36 countries today. Very much, particularly in the BNPL space, market share and speed to market are very, very important. We help our customers not only launch new card programs. We incentivize them through the contracts but also help them expand, whether that's through a retailer and getting that program up for the holiday season or going abroad.

Excellent. A lot of this has to do with some of the work we've done around how cards are still very much a part of even some of the upfront transactions associated with buy now, pay later. It's not just the repayment of the loan, so I think that's a good segue there. I want to back up a little bit just before we go to the next topic. I should have hit this when we were in the intro section. But just for the audience, could you just talk about the revenue model, the mechanics? In other words, how does Marqeta make money?

It's a great question and one that we've gotten a number of times. We are primarily an interchange-based business. When you look at our income statement, we'll highlight net revenue. That is gross interchange, less money or kind of customer client share that will give that interchange to our customers. Typically, contracts are structured on a multiyear basis, and we want to align our interest with our customers. We give them volume-based discounts. We want them to bring more volume. We want them to launch new card programs on our platform. But going further down the income statement, we pay our banks. We pay our networks. We have incentive agreements with our networks. They certainly are motivated for additional volume and are willing to incentivize us to grow, and that will get us to kind of gross profit.

Okay. Excellent. Thank you for that rundown. So you mentioned some of the ways that Marqeta earns money. And for some clients, there are multiple ways, and that's a nice segue to one of your large customers, Square. So Square, clearly, there is the Cash App card. There is the Square card for seller or Square checking offering that Marqeta is supporting. Could you talk a little bit about that relationship? And then maybe some of the extra activities and/or services that you provide to this unique customer.

Yes. Square is a wonderful customer of ours. They have a multiyear agreement with us. I will say I was directly involved in that discussion. They are a wonderful partner. And I -- taking a step back, I've worked with Square, not only at Marqeta, but in a past life as well. They are exceptional at building frictionless, delightful product experiences for their end customers, whether that's a merchant or a consumer. And you're absolutely right. We do work with them on both sides of that ecosystem that they're developing. They are our largest customer. From a net revenue perspective, I think we highlighted that our concentration was decreasing but down to 68%, and part of that is really the growth of our non-top 5 customers, which grew 226% in Q3. Square is a great customer. They continue to use multiple parts of our platform. Adding additional services, as you kind of highlighted, whether it's the banking services or we recently announced taking the seller program to Canada. We help them with direct deposit, and there are other services that we offer at Marqeta. And certainly, Square is a shining example of modern card issuing with Marqeta.

Excellent. So you mentioned direct deposit, Canada, some of those additional services, safe to add things like ATM-related services, car production.

Yes, yes.

Okay. Great. All right. Excellent. Well, I think that's good for a start on Square. Maybe we could circle back to that during the open Q&A, but why don't we move to the next topic? Soa lot of what we discussed so far has been well, at least for Square, those are debit cards. Maybe we should talk a little bit about credit card issuing and how that's different from debit and some of the progress that Marqeta made on the credit platform.

Yes. Credit is a huge opportunity in the United States, depending on which kind of data sets you use, it's greater than half of the volume in the U.S. This is also, I would say, issuing, processing and particularly credit platforms has really lacked innovation. We have made a number of investments over the last few years, and we'll continue to invest because we believe it's an excellent opportunity. It is a modern platform. It has a system of record. It's built from the ground up. It has instant issuing capabilities. It has what I'd say some features around rewards, around budgeting tools, a companion app. And there's an incredible amount of control that we will offer to our customers, whether that's around statementing or APR or credit limits. One of the things that we are known for at Marqeta is real-time authorization where we bring the power of authorizing or declining that transaction in real time. And that is very important in the grand scheme of things. Certainly, for some of our verticals. I'll highlight ODD. But it is an investment area for us. We highlighted M1, which is currently in market in beta. And we're certainly excited about the possibility given the large opportunity in front of us.

Okay. Great. Would you say this was always sort of in the plan and which is sort of a matter of time, and it was always a TAM that you wanted to go after?

That's a fascinating question. Yes. We've -- from a finance perspective, we certainly made investments over multiple years. It is a driver of our growth. And when I think of our 4 pillars of growth, adding new customers, expanding with our existing customers, expanding our ecosystem and expanding our footprint it falls in that ecosystem category. We came to market with a partner called Deserve, and that is a lot about speed to market.

Okay. Excellent. So you -- we sort of started hinting at this earlier. We talked about buy now, pay later and the fast growth and how that's somewhat contributed to the reduced concentration associated with Square. Another area that's experienced some pretty strong growth and is set to do more in Q4 is the cryptocurrency vertical. Maybe you could talk a little bit about your -- some of your also big brand name customers there and the progress.

Absolutely. We made an announcement at Money 2020 around crypto. It's a new vertical. It's an emerging vertical for us but one we're excited about. We work with Coinbase and Shakepay and Bakkt and Fold, and what we do is somewhat unique, and I'll say this. We help them unlock that spend. So when an end customer takes a card, swipe taps, inserts that card at the point of sale, a message is sent from that point of sale to our platform. We will do checks and balances on that. and we'll send it back to that customer, let's just say it's Coinbase, in that instance, in real time, because remember, the networks have that 6-second rule. We will allow essentially Coinbase to check that crypto balance, and they can authorize that transaction. They will convert that to a U.S. dollar equivalent or fiat currency and authorize that transaction. It's about unlocking that spend, which is, I would argue, a theme at Marqeta.

Great. And to recap many of these partnerships are live and again, expected to start contributing in some small form beginning Q4 right now essentially?

We are certainly excited. It is an emerging vertical for us, and we're certainly excited about it.

Okay. Great. Conscious of time -- sure. Go ahead, [ Paul ].

Just wonder why differentiation process, Stripe and Adyen especially, operate. Obviously, both very different stages of maturity. But like how defensible is your processing differentiation this quarter?

It's a great question. Stripe and Adyen are amazing companies. I, myself, have worked with Stripe in a past life. They're a great company. They are absolutely true in that statement. They are newer to issuing. When I think about our position in card issuing, we've certainly been at this for 11 years, and we've built up a range of capabilities, whether it's around just-in-time funding. We pioneered that, whether it's around instant issuance or tokenization, whether it's around stand-in processing capabilities or whether it's operating at scale. In Q3, we processed $28 billion of volume. And customers we find choose us for scale, for our technological capabilities and our experience. It's certainly -- they certainly have an open API kind of approach, and they are wonderful, wonderful companies.

Great. Do you mind stepping up to the microphone, so those on the webcast could hear?

Building on that question, Stripe and Adyen. TSYS also talked about their partnership with AWS has allowed them to go after your customer base. Have you seen any of that at all? Do you think they're -- have any potential to be a competitor there? Is it -- or is it primarily Stripe and Adyen who you would be focused on, on the competitive front?

I'd say, broadly from a competition perspective, we compete in some ways with the more modern platforms. The advantage that we have is this is our sole focus, and I would argue that we're good at it. From a legacy perspective, whether it's TSYS or another company, again, they are great companies that have been built over many, many years. I think some of the reasons why we're differentiated there is not only some of our capabilities that we pioneered like [ Jet ], our ability to process at scale but also our speed to market. We highlighted that we can do direct integrations with, as an example, in the BNPL space and retail where we can get something up and running in days. Ultimately, the complexity of our platform, we have hundreds of APIs. We allow an incredible amount of control at the transaction level in real time. And so I would argue that we compete in various ways and with different players.

And then tracking potential changes to the Durbin amendment, how do you think about that how it could impact your business? Any developments of late?

Yes. We obviously pay close attention to it. There are folks at Marqeta that keep their ear to the ground. We see no change on the horizon that would impact our business. That being said, we are primarily an interchange-based business. We do have a -- what I would say a transaction-based business in Europe. It's a different interchange environment. We decided to pursue that business model because we thought it made sense, and we highlighted that our European business grew 340% from a transaction perspective. It's a smaller part of our revenue today, and we doubled our customer base from a year-over-year perspective. So we can operate in different environments.

Okay. Great. Okay. And we'll come back for some more Q&A in a few minutes. Why don't we move on to the -- another exciting vertical for Marqeta, which is the expense management vertical, so another area where you've had fast growth, I believe 164% in Q3, 100% in Q2, pretty impressive numbers. Maybe let's just talk about some of the key customers there and the drivers of that strong growth.

Yes. We saw 164% growth in Q3 in expense management, I'd say driven by 2 factors. Number one is we're starting to see people traveling more, frankly speaking. We're all kind of here, as an example, and corporations are starting to spend more. So we work with folks in the travel space, we do. In addition, I would highlight one of our larger customers is Ramp. We actually -- Marqeta finance team uses Ramp as a product. So it's pretty good, I will say that.

Okay. Great. Yes, another brand name customer to call out. Speaking of brand name customers, why don't we move to large financial institutions? So clearly, you are working with Marcus by Goldman Sachs and also JPMorgan with some of their commercial virtual cards. So these are big brand name, large financial institutions. Maybe you could just talk a little bit about Marqeta's approach to working with the large traditional banks.

Yes. It's -- when I take a step back and think about where does Marqeta focus, I think commerce disruptors first, and that's our sub-verticals of BNPL. The second is in digital banks. The third is in large tech companies. We work with Uber. We work with Google. And the last category is large financial institutions. We do work with JPMorgan, and we do work with Marcus for Goldman Sachs, very different, I'd say, use cases. But I'll highlight in the case of JPMorgan, it was a lot about being a technology partner. We have something called tokenization as a service. We allowed to take a virtual card and tokenize it, drop it into a digital wallet and pay instantaneously. And in this case, we were solving a customer problem for them. We want to be a thought partner to large FIs, we do. You coming from a large bank, the procurement process, the compliance process is challenging. And so we obviously have an agreement with them. We -- and we want to be that thought partner. We want to be at the table when new card programs get started or existing card programs come up for renewal. We absolutely want to do that. Over time as we continue to scale and build out our products and services and make strategic investments in our business, we want to be at the table when those card programs renew or get started. And today, we want to be that technology partner. We were able to decouple that tokenization as a service from our platform and offer it in a very bespoke way.

Okay. Great. Yes. I think you kind of covered the next question in terms of renew, which is great. Actually, I want to sub something in. So we talked a little bit more about the large brand at Goldman Sachs, JPMorgan, right? What about the meat of American banks, the midsized American bank? What's the approach to speaking with, meeting with, gaining access to their card programs?

Yes. I'd say we recently announced a partnership. And when we think about partnerships for Marqeta, they can speed up our go-to-market motion, especially things like a reseller concept. It also adds -- enables us to expand into new use cases by working with a partner. And certainly, we mentioned that in the BNPL kind of space of bringing that BNPL capability that we built and kind of leverage with some of the major players to what I would say are the small- or medium-sized banks. Partnerships can certainly speed up the decision-making process. They can help you get to market faster. They can help you complete out your product suite, so it's an important element. They do take time. But that being said, I think we're moving in the right direction.

Excellent. Thank you, Tripp. I think it's a good time to pause. We have a few more questions we could work in, but I want to make sure we leave time for the audience. If there's anyone else that would like to ask a question, please feel free to do so. Okay. We'll move on. So why don't we talk a little bit about 2 of your more recent customer partnerships that you've signed up, I don't believe you've mentioned yet: Bill.com and Uber Freight.

Yes. Bill.com was -- certainly, they're a great company. They've certainly innovated an incredible amount in kind of small business and payments. This was about essentially our virtual card, our instant issuance and enabling their FI customers to kind of pay and get paid faster. It was their competitive process. I'd say Marqeta was chosen for a couple of reasons. Number one our ability to do things at scale. Number two was -- what I would say is typical at Marqeta when we work with innovative companies is we share our product road map. They share theirs and see if there's an alignment. And so that was definitely a portion of it. I would say also our experience. It is very much when you think of our customer base, we support their core business or we enable their core business and our ability to deliver things from an availability, uptime scale perspective. And I will say Jason does have quite a close relationship with René so that definitely helps. But -- yes.

It helped.

Happy to talk about Uber Freight as well. In this case, it was about solving a customer problem of very simply getting paid faster. And when you think of the gig economy and the gig worker, getting that money instantaneously or in the case of what we did through partnership was get that paid in 2 hours that would have taken something like 30 days. That's about our technical platform of essentially speed to market with the innovation in partnership with one of our customers and tokenizing and dropping something into a digital wallet. In this case, I believe it was Branch and getting that product to Uber Freight. So it's unique in terms of our ability to not only team up with Branch as a customer but team up with other companies to deliver something that truly adds customer benefit, in this case, to the end customer, the gig worker, because getting paid quickly is real value. It is.

Tripp, thank you. I'm really glad that we got to hit on both Bill.com and Uber Freight. In the little bit of time we have left, I want to circle back to international, which you referenced earlier in your comments. So you're in 36 countries, but it's sort of a low single-digit percentage of revenue right now. I understand that you're enabled license-wise. So is it a matter of going into these new markets with your existing customers? Is it building a sales force to go reach new customers, a little bit of each? What are other some of the -- what are some of the things that Marqeta needs to do to build that international business?

It's a great question, and I think sometimes it's truly underappreciated about the issuing side of the market. The first step is certification. So a long time ago, we announced certification with -- I believe it was Visa in a number of countries in Asia. That certification process is a heavy lift. It is. As I was talking to somebody earlier today, one country had 3,400 use cases. It's certainly a barrier to entry in the issuing side. And to do local issuance and to do it well and do it seamlessly and provide uptime and scalability and resilience of the platform is not a small feat. That being said, the European business is headed under Ian Johnson, who's done a remarkable job of serving customers, primarily, I'd say, in digital banking and BNPL. It is not only about getting those new customers and adding those cohorts year-over-year. It's about expanding with our existing customers. We highlighted most recently taking Square seller to Canada, but that's emblematic of what is important to Marqeta is using more surface area with our platform. And that is a -- as I said -- or maybe I didn't say. Maybe I said it to you earlier, but it is a fee-based business, so it's a transaction-based business. It's not an interchange-based business, but it involves certification first. We put -- in the case of Europe, we did put people on the ground. And you build a kind of a small team, and then you expand as you grow, and you get more customers. We have talked publicly about our ambitions in not only Asia but Latin America, and this is a journey. At the end of the day, it is a structural advantage that we have over competition. Having a single global platform where you can do one technical integration, there are kind of network and bank certifications that you need to do to stand up a card program on the issuing side. But having that singular global platform and helping our customers grow is hugely important.

Well, Tripp, thank you. I think we covered everything from all the exciting fast-growth verticals, the international opportunities, some of your new partnerships. It's been a pleasure. We're out of time, but I want to thank both you and Stacey and also the full team from Marqeta for joining us at the conference.

Thank you. Thank you for having us. Thank you for everyone joining, and I'd say thank you to all the folks that do all the logistics. This is not easy stuff, so -- especially now. So thank you for the invitation, and Thank you for the opportunity. Thanks a lot.