Card issuance may be facing a digital speed bump.
But that growth is slowing, and the future is uncertain for Marqeta’s key FinTech customers, who are facing macro pressures of their own.
Now: 53% growth in TPV, as seen in the most recent quarter, is nothing to sneeze at, and it speaks volumes to the fact that consumers still want cards.
But the latest numbers are a meaningful deceleration from 76% seen earlier in the year. The most recent 53% tally is the same rate seen in 2022’s first quarter and hints at the fact that debit card issuance is a competitive field amid the great digital shift. In signs of further deceleration, management has guided to a revenue growth rate in the high 30% range.
Chief Financial Officer Mike Milotich noted it is “prudent to be cautious about the next several months.”
FinTechs, he said, are being “less aggressive” about their expansion plans and investments. He stated that “many of the customers signed in the last 12-plus months, as well as crypto customers, will ramp their businesses more slowly than we expected a few months ago” which in turn means that these clients’ cards and other financial products offerings will be muted.
As Milotich noted, for customers where card programs are central to their business, at least some clients are opting to expand into new programs or geographies, opting instead to “pause and wait a little bit to see what happens.” For other client firms that had been looking to introduce their own card programs to monetize new revenue streams, investments are instead being tightened to focus on their own core competencies.
“It’s not broad based yet,” said Milotich, “but we have heard it from a few customers.”
Milotich also gave a sense of the puts and takes within the $40 billion of TPV: Growth accelerated in expense management and on-demand delivery, offset by tough year-over-year comparisons in financial services and BNPL segments.
There’s a bit of shift in the mix, according to Milotich, who noted that while growth remained evident across all sectors, growth “decelerated meaningfully” from the first quarter across discretionary categories such as retail, travel, entertainment and home improvement. These categories equated to about one-sixth of total TPV, said the CFO.
And buy now, pay later (BNPL)? Well, that’s still going strong — no surprise — but it’s fallen below 100% for the first time. These are tough comps to lap and would be made all the tougher by a hyper-competitive industry where BNPL is being spread out among dozens of providers and enterprises. At the moment, Marqeta’s “other” revenue streams, such as dispute management, are a smaller piece of the pie and cannot buffer against a slowdown.
Striking new partnerships helps, but it takes time to see fruition. Marqeta’s results follow the June announcement of a partnership with Western Union, where Marqeta is being integrated into Western Union’s digital banking platform in Europe. In terms of the mechanics of that deal, customers can access Western Union’s entire remittance service online with funds paid out to a physical or virtual Visa debit card.
Reliance on Block
And though there is still growth out there, to paraphrase an old saying on Wall Street, if Block sneezes, Marqeta catches a cold. Block accounts for 69% of the latter’s business, up from 66% in the first quarter, though down from 72% last year. And as is well known, the contracts that Marqeta has in place (with Block and Afterpay) run only through 2024.
As CEO Jason Gardner said on the call, “we understand that the market is eagerly waiting a renewal, and we’ll share updates when we have them.” Cynics, we contend, might snark that Gardner, who is stepping down, is getting out while the getting is good.
For now, at least, it seems the slowdown will be long-lasting. Milotich noted on the call that when the firm signs a deal, it takes customers as long as six months to connect to the platform and then as long as three quarters to gain some scale with their card programs (and by extension, transaction volumes).
As of this writing, investors have sent Marqeta’s shares plummeting, down 19% intraday — pointing to some real concerns about what lies ahead.