From problem solver, at scale, to new listing on the Nasdaq.
Marqeta, the FinTech that helps businesses issue their own credit, debit and prepaid cards, went public on Wednesday (June 9). The shares finished the day up more than 13 percent, closing at $30.52, with a market cap of more than $17 billion.
Jason Gardner, founder and CEO of Marqeta, noted in an interview with Karen Webster that the initial public offering (IPO) represents just how far the payments ecosystem has come in card issuance.
As he told Webster, not all that long ago, just last week, he was in the midst of the pre-IPO roadshow, where, he recounted, he would note that the word “FinTech” didn’t even exist a decade ago.
“We’re in the very, very early innings of all of this,” he said of the shift toward digital payments and instant card issuance, away from the plastic and toward the personalized cards that reside on phones.
The Aha Moment
As with any company that files to go public and traces its roots back over several years (more than a decade in Marqeta’s case), there’s a long road between concept and education, between figuring out pain points — and then solving those pain points.
“With any company you’re building, product/market fit can provide elusive, but once you find it, it’s kind of like magic,” he said.
He related that there was a moment where he realized that there was indeed a niche for Marqeta to fill. He’d been sitting in a prospect’s office with their chief technology officer (the firm is still a Marqeta customer). That customer, he said, had been talking about all the fraud that he was experiencing at the point of sale using prepaid cards.
“He wanted to be able to authorize his own transactions, using data that he was receiving off of mobile phones, which is where they have had their app,” said Gardner.
Marqeta, he said, had been building its “just in time” capability — and said that Marqeta could take the client’s ISO 8583 message generated at the points of sale and convert them to computer-generated messages (but in a format readable by humans). Then that customer, Gardner elaborated, could decide whether to authorize or decline the transaction.
“His mouth hit the floor,” said Gardner. “He said, ‘Oh my God, you can solve my problem at massive scale.’ That was the moment where we realized we can not only help companies disrupt entire industries, but we can truly help companies scale and solve real problems at scale.”
The pandemic, of course, has given tailwind to digital-first or digital-only firms — that help other firms realize their digital ambitions — to scale quickly.
Instacart, for example, as Gardner said, became an essential service in the middle of the pandemic. The company needed to hire hundreds of thousands of people and needed to get cards in the hands of those shoppers. Beyond the confines of plastic, he said, the cards dropped instantly into Google Pay or Apple Pay as they shopped for customers.
It’s an illustration of how far we’ve come since the days when issuing and processing was delivered to a bank, and one wanted to buy a card – whether credit, debit or prepaid – “it was like an assembly line,” said Gardner, “and it was the same card that everyone else had.”
But modern card issuance, through firms like Marqeta, said Gardner, gives engineers and developers, along with technical product managers, the opportunity to issue card products (aided by application programming interfaces (APIs) and platforms) that are fundamentally different than competitors.
“This allows them to solve real business use cases versus before, when you would be handed a card … and you just had to figure out how to shoehorn it into your business,” contended Gardner.
That flexibility, and the wholesale embrace of digital payments, will change the checkout experience itself, said Gardner, in a process that will take a while but is inexorable. Consumers are beginning to understand that when using their phone at the point of sale, it’s more secure, as cards are tokenized and the entire transaction is personalized and streamlined.
Moving Beyond Square
Drilling into the business, he acknowledged that Square, at roughly two-thirds of revenues, is a key customer. Still, there’s a runway into 2024 (when the contract between the two firms would be up for renewal), to diversify and find new business models.
Marqeta’s strategy, he said, was to start with commerce disruptors such as DoorDash and Instacart; buy now, pay later (BNPL) firms; and expense management companies like Brex and Expensify. Marqeta then moved into digital banks and then to the large tech giants/platforms like Uber. Banks like JPMorgan have been operating on legacy platforms, while firms like Goldman are building digital banks.
The Market Potential — And The Interchange Factor
“There’s $6.7 trillion in card volume in the U.S., and $30 trillion globally,” he said. While only two percent of Marqeta’s business comes from outside the United States, “We believe that there’s many unwritten chapters around the digitization of payments and the modernization of platforms. We believe that everything is moving to modern platforms. So there’s an extraordinarily large opportunity ahead of us. ”
As noted by PYMNTS, and described in the company’s S-1 filing, the bulk of revenues comes from interchange fees. Asked about the impact of changes to the Durbin amendment and, separately, on caps on interchanged tied to international transactions, he said, the current (Biden) administration has not signaled upheaval to the current structure on the horizon.
“We operate this in 35 countries beyond the U.S.,” he said. “We have a great business within Europe. We just launched recently in Australia, in New Zealand and are going to be lighting up more countries within Asia … so there there’s a number of opportunities and those opportunities don’t have to be dependent on interchange.” Those opportunities are, instead, tied to value-added services and revenue-sharing opportunities.
Conventional wisdom may hold that account to account transfers (and real-time payments) may threaten Marqeta’s business model (via a parallel network that does not run on card rails). Gardner countered that A2A could, in fact, be viewed as an opportunity.
“Visa and MasterCard have interconnected every single merchant on the globe that wants to accept cards, whether online or offline that that’s not going to be replaced any time soon. It is very, very difficult to build what [the networks] have built,” said Gardner, and that signals new revenue streams for Marqeta, whether it’s real-time payments or connecting exchanges to digital wallets and points of sale to make crypto spendable (Marqeta, in fact, powered the first crypto card, years ago, with Ripple).