Despite Embedded Finance’s Promise, Slowing BNPL Growth Sends Marqeta Shares Plummeting

Slowing buy now, pay later (BNPL) volumes and customers’ belt tightening helped send Marqeta’s shares down sharply Tuesday after earnings.

By the numbers, the card issuing platform company’s earnings supplementals show that quarterly total processing volumes (TPV) were 41% year over year to $47 billion.

Simon Khalaf, CEO, said that the latest TPV stood at 2.5 times that of the TPV logged in the fourth quarter of 2020. He said during the call that financial services and “Powered by Marqeta,” the card program, were among the fastest growing segments. Management said on the call that Powered by Marqeta accounted for 20% of TPV in the most recent quarter.

Khalaf noted, too, that net revenue retention has remained “healthy” across its Block and non-Block businesses.

“The embedded finance market is rapidly expanding and evolving,” he told analysts and pointed to wage disbursement and accelerated wage access as key avenues for growth.

The acquisition of Power Finance, management said on the call, is on track to be completed in the third quarter of this year.

The State of Embedded Finance

And with commentary on the state of the embedded finance landscape, Khalaf said that the company had been “slow to adapt to the evolving market – which in late 2021 started shifting from FinTechs to more established brands looking to bring embedded finance solutions to their existing user base.” Bookings across several quarters did not meet expectations, the CEO said, and yet fourth quarter bookings, he said, have been “extremely strong,” totaling more than the first three quarters of 2022 combined.

“The FinTech boom led to an unbundling of the banking industry, leaving it to customers to piece together disparate systems into a suboptimal solution. Embedded finance customers simply will not tolerate that,” Khalaf said.

CFO Mike Milotich said on the call, with a nod to volumes, that “in Q4, we had over 50 days where we processed over $500 million in volume compared to over 30 days in Q3 and less than 20 days in Q2 of this year.” Volume has been growing with increasing use of Block’s Cash App, rising card penetration among consumers overall and higher spend per card user.

But the rate of that growth has been slowing and there are some headwinds in the mix. Buy now, pay later, he said, saw slowing growth, though growth rates were still in the double digits.  An unnamed customer migrated part of their BNPL programs to another processor in the third quarter for what the CFO said were “diversification reasons.” And many of the firm’s customers are tightening their own spending and credit requirements.

Block continues to be a key customer, and accounted for 74% of the companies revenues, which stood at $203.8 million. The CFO said that Block grew by 31%, tied to Cash App and Afterpay.

Looking ahead, said Milotich, “We have assumed a modest slowdown in the trajectory of consumer and business spending as 2023 progresses.” Management sees revenue growth of 26% to 28% in the current quarter (in past PYMNTS earnings coverage, revenue growth has been noted at more than 50%). Management noted that the firm, in the CFO’s words, “would like to secure a [Block] renewal in 2023.” The Block contract runs into 2024.

In the meantime, the company is renewing contracts where the customers are getting “better economics as they get bigger,” said Milotich, so “2023 gross profit and net revenue growth will face headwinds.”

Investors sent the shares down 16% after hours.