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

And you get people who are in the middle, right? Like it's -- most of what we do now, I would say, is like powered by plus. There's always some things that we're going to do on top of managed services, and some things that our customers want to even our most sophisticated customers. And the way to think about it is like it's a traditional outsourced versus in-house decision. And it's -- they run the economics and they make their decision about how they want to manage their cost and their balance sheet.

Block obviously, is a significant partner of yours. Maybe just also to kind of level set with everybody here. How does Marqeta support Square or Block on their user to calling them flop? And how has the partnership evolved over time? And I guess the end of my question there is, in what ways can the relationship sort of deepen as we move forward?

Block's a fascinating customer. And I expressed earlier sort of like what is a great customer for Marqeta. Block is like the ideal. And what I would say is like they have incredibly powerful and incredibly sophisticated software engineering talent and capacity, right? And as a result, what they want is extreme flexibility. And so they're great partners for Marqeta, right? We are a cloud-based API for its modern prior to issuing platform that has lots of flexibility. So for Block, because they are so sophisticated from a technology perspective because they're a great marketing company and because they have just like real understanding of customer UI, like the experience that you actually get. That's really the difference in their product. It's how you use it versus the services that are available, right? Because there's thousands of competitors, but they're the winner. So what really makes it a great partnership as you get Marqeta, where it's -- we can do anything that they want to do, and they can configure it in any way they want in their experience. So it's not the traditional banking relationship where you say, here's a co-branded card. And if you want to access that information, you have to go to the bank's app. That's traditionally how banks offer co-branded credit cards. For us, it's how do you want the experience to look. It's completely embedded in the Cash App experience, Marqeta's white labeled. It's in the background. Nobody knows who Marqeta is. So for us, we just keep adding services, and that's been our strategy. It's keep adding as many capabilities, capacities of banking and money movement, right, enable them to get money in, so direct deposit accounts. We're working with them on both rewards programming, like how do you incent people to use the product more frequently. We've launched Square Seller, the seller card, obviously, in Canada. So we go international with them. We launched the Cash [ Actincard ] last year. So there's all these things that we continue to do with them. And there are -- like I said, they're the ideal customer, right? If you think of any company that looks like them, and there are hundreds, ultimately, it is they are pushing us as much as we are pushing them. We are innovating together, and we are learning as we go. And so that's -- in my mind, that's the best partnership you can possibly have.

So maybe putting Block aside for a second. How important is that flexibility in the sale? I mean, are your customers really looking to you because hey, they could go to a more traditional vendor who would just give them sort of something that's somewhat clunky and say, here adopt this versus sort of like you guys saying, like here's a bunch of lego bricks, build your own. How is that -- is that, in essence, the value proposition or...

I think -- yes. So I think historically, that was the value proposition and probably one of the reasons when I say like we got to this inflection point, right? We talked about '21 and '22, where everything slowed down. At some point, you burn through the early adopters. Early adopters are generally the most technology savvy. They're the ones who generally understand what they need, their payments savvy. They have huge payment teams and what they're looking for is just a technology provider. So take like an Instacart or someone like that. These companies are wired to do business with the Marqeta. But eventually, when you burn through that TAM and you get to sort of like, okay, now I want to go do business with, I don't know, pick any multichannel retailer, right? Who's got legacy systems, legacy technology. They don't have great engineering teams, how do you express to them that you want to do this payments program that's going to be phenomenal. And it's going to be embedded in their experience. So -- if you think about sort of like the opportunity and where we're going, I would say having the ability to do everything completely bespoke for one end of the market, phenomenal. But what we really need to get to is, like I said, 80% of what we see across all of our customers and there are hundreds of them is common and standard. And so what we've been working on is -- how do we get and line up? We know this bank will assess this credit box. And in this program, this construct, mean like this bin, whether it's commercial or it's consumer -- and then we know it's expense management. So it goes, this is it. Like this is your partner, you can have you stood up in 90 days. So that's where Marqeta is going. And where I think we have seen competition historically is either -- at either end of the spectrum, it's you either get competition to someone who's not as flexible as you from an API perspective or capabilities perspective, or it's I have a point solution that can be up and running and it's not flexible. It's basically an app that works out of a box, you customize 10% of it and you're ready to go, and then it's at the lower end. So it's having the ability to do all those things. And we have historically been very good at the mid- to upper echelons. I think we're moving what I would call a down market, but it's really for smaller, less sophisticated customers who are really looking for like a quick-to-market easy button.

Expand a little bit on competition. And what is your view of the competitive landscape? Who do you guys go up against? I think you have a differentiated offering. There are others out there maybe trying to choose the [indiscernible] at the same time. What do you think about competition? And what differentiates Marqeta?

Yes. It's funny. I would say we see different competitors depending on the industry that we're in and the size of the company and the level of sophistication that they have around payments. So typically, what makes Marqeta unique is that we are one of the few players coming to the table, that is not just a processor, but also a program manager, has the bank, will give you end-to-end services to scan up a program or, as I said, somewhere in between, we would say, you can own these things, we'll keep these things. It depends on the balance of what you want to do. The other thing that we can do that I think is unique to Marqeta is it's debit and prepaid. Generally, it's international and it's now credit with the acquisition power. So we are one of the very few that regardless of what you're trying to do, we are a player, and you should be evaluating us. The other part of it is if they're thinking future forward and they're big enough sophisticated enough customer, and these are the customers we want, they're thinking not about like the program that they're going to stand up tomorrow, they're thinking about where they're going to be in payments in 5 years and how many providers do you want to work with? Like if I go back and I look at like legacy technology companies that have built massive payments infrastructure. They have teams of people, thousands of people who are dedicated to payments and you know these companies. Essentially, all of them have cobbled together. This is like the traditional software marketplace. Like you've gone to 20 different providers, you hired consultant systems integrators and you've built this complex unique stack, and you can't get out of it. You're stuck. So what you see is like if you are thinking smart forward and you look for the first time thinking about payments, Marqeta is the answer. If you go ask those companies who are legacy players like can they get out of their stack, most of them will say, no, until it's so painful that they'll do it. And then they want to work with Marqeta. Everybody wants one provider. We are one of the few, if not the only, I would say, in the market that offers end to end. And our strategy is bearing this out, you see it like 2/3 of our deals that we're doing are expansion deals with existing customer base. 1/3 of them are outside of the United States. So we are doing things that very few companies can do themselves. And so it's -- to me, the competitive landscape is literally with a bunch of players who can do a piece of what Marqeta can do, but none has the horizontal view of the market that we have.

You mentioned credit, and that's a relatively new area for you guys. Help us think through sort of the demand side of the equation there? You've obviously gotten to that business for a reason. What are some popular use cases or interesting use cases that you're seeing that really drove you to get involved there?

Yes. Great question. So look, I think we have historically offered secured credit, and we did credit processing, but we did not do credit program management. And so the real value add for a company that's getting involved in payments from the get-go, if it's an initial new sale, they are interested in program management because they don't know how to manage the bank. They don't understand the regulatory requirements. They don't want to manage the networks. And so they come to us and we can stand them up. On the credit side, historically, we've not been able to do that. Power gives us that capability. I think the really interesting way to think about credit is not historically the way credit has been thought about, which is like -- there's a co-brand program, you need a bank partner. Here's a credit card that has some rewards program and there's a credit limit based on your income. That's like 99% of the market. What's really interesting to think about is that gig shift worker problem, right, which is how do I become creditworthy in the United States if I'm an immigrant or if I am underbanked or thin-file client? And you have to graduate from prepaid to some kind of credit building to some form of credit if you're going to get a loan in this country, right? And so one of the nice things about what we're building with respect to Power and all the banking and money movement capabilities is not to think of them as like we're going into banking and money movement because we want banking and money movement to be a huge business for us. These are capabilities like we were talking about, Legos that can be attached to constructs. So I can have a credit card with a direct deposit account attached to it. And that can be a secured card to start. But over time, I can use Power's capabilities to say to somebody, I'm going to use your workforce history. So I know how often you work a shift, I know how often you complete a shift. I know how long you've been working here. I know how reliable you are. I know the quality of your reviews your 360 reviews. So I'm more qualified to determine whether or not to extend your credit. So what I can do is with the credit construct that I am involved in 30 days, I can have a dynamically changing credit limit. You've earned $700. That's the money you have today. But because I know you have -- you've worked the last 30 days, every day and you work 6 hours a day, now I'm going to extend you $400. Nothing has to happen on the back end. You have to apply for a loan, you don't have to do anything. Magically in the background, you have 2 balances now. One is your earned wages and one is your potential that you can take either early access to wages. So they really are secured, or it's [ I am lending you ] this loan because I think that you're good for it, right? And so it opens up all these unique possibilities in the market that didn't exist before. And so if you think about that gig work or shift worker opportunity to 47% of people that are out there, that are living paycheck to paycheck, that can't get credit, massive opportunity. And so for me, it's not about like how do you go and take the legacy business. It's how do you go build businesses that never existed before. And the market has responded. We are -- there's a number of customers that we will stand up and announce in the next couple of months that are doing exactly that with credit.

Do you think that traditional FIs and banks will start to need those types of capabilities. I asked that because there's always this TAM in sort of like, wow, the TAM of card issuer processing and banks is massive, Marqeta can just take. But going up against the large kind of commodified into your point, cookie cutter box card issuers, it's tough. But will that be the thin end of the wedge where the bank says, you know what, I actually need those types of capabilities, too. But I guess, there is another way of asking like, talk about the bank opportunity for Marqeta.

Look, I would say, banks are really smart. They follow the money. And the reality is like in all markets, the economics come to bear at some point. And so if you think about where the market is today, its very easy to sit as a large bank with your current processor and your current programs that you're supporting that are traditional. The market isn't challenging you yet. But as you start to think about these upstarts, maybe 5 years ago, it wasn't that interesting and they were ignoring it and looking the other way and saying, well, now, somebody is modern processing capabilities, they're interesting, but we don't need them in order to be successful. I think now that you're seeing corporations stepped into the breach and say, I am going to take this on, and I'm going to have a direct relationship with either my employee or my customer. And the bank is in the background. At some point, that market comes so far that is even possible to ignore. And I do believe over time, when they're ready, the large LFIs will say we need these capabilities, too. And I truly believe that we have great relationships with all large banks today. We talk to all of them. We have relationships with all in different capacities. We're constantly in communication with them about working together. At some point, I have no doubt that Marqeta will become a part of their stock. But couldn't possibly say when.

What about the international opportunity? How is that -- how do you think through that?

I love the international opportunity. I'll tell you why. So I think every customer we have is pushing -- almost every customer is pushing us to go internationally. One of the nice things about that is we have sort of this amortized market entry position. So most people have to go and invest in advance to open up a new market and you have to take that risk. Marqeta doesn't actually have to do that. What happens is our customers push us. So Uber is all over the world and constantly opening up new markets. We have Western Union who went from Europe and is coming back to the United States. So there's all these customers that are pushing us to go to Canada or wherever it might be. And as a result, we don't have to make those choices -- you see patterns. It's -- everyone wants to go to the same markets. Everyone has done the same research. So if you see your customer base and you've got this broad swath of people pushing you into new markets, and they're all pretty common. It generally lets you know there's a good opportunity, and that enables us to invest. And so that's been the strategy. And as I said, 1/3 of our deals last quarter were from the EU. So...

Interesting. And you also -- it's not the heavier work to get into a new market. That's why I wanted to ask you that as well. It's not like you got to go through a bunch of licensing, a bunch of [indiscernible] basically.

Depending on the model you are in. If you're doing power buying you really -- you don't need a money lending license, you don't need any -- it can be relatively fast -- depending on what the needs are, but yes, you're right.

Fantastic. Terrific conversation. I really appreciate it. Thanks so much for being here.

Thanks.