Thredd’s McCarthy on Winning in the Changing World of Issuer Processing

Earlier this month, shares of Marqeta plunged more than 30% in the wake of weaker-than-expected guidance.

The company pointed, in part, to delays in bank partners launching new programs. It said programs have been taking 40% longer to launch, and 15 projects were pushed out an average of 70 days. The average time to activation of a new card program stretched from 150 days in 2022 to 300 days.

It’s a problem that extends beyond Marqeta, but it also represents an opportunity for card issuing and processing platforms, Thredd CEO Jim McCarthy said. In an interview with Karen Webster, McCarthy shared his insights on the state of issuer processing. His perspective was particularly relevant considering Marqeta’s third-quarter 2024 earnings results, which led to a 43% decline in its stock price.

McCarthy’s perspective was also influenced by increased regulatory scrutiny in the FinTech space. The days of the “Wild West” are over, he told Webster, with regulators becoming more stringent in their oversight. This has led to a “flight to quality,” with banks becoming more selective about partnerships.

“There’s a new sheriff in town, if you will,” McCarthy said. “When you say FinTech, now what regulators hear is FTX.”

Issues for Issuers

The “new sheriff” has also led to an evolution of program management in issuer processing. Program management offers a turnkey solution for FinTechs looking to enter the card-issuing business. Traditionally, this has involved a revenue-sharing model where companies like Marqeta take a portion of the interchange fees generated from card transactions.

“The program managed business … is a double-edged sword,” McCarthy said. “For a FinTech that wants to get into the card issuing business … the vast majority, especially the kind of smaller, newer players to the space, don’t know a lot about what that entails.”

However, as FinTechs mature, they often seek to take control of their revenue streams, leading to a shift away from the program management model. This trend is reflected in Marqeta’s earnings, as the company has faced challenges with regulatory headwinds, slowing down the activation of new programs. Additionally, some of Marqeta’s clients have sought to take more control of their issuer processing operations, impacting Marqeta’s processing volume.

McCarthy offered several potential explanations for Marqeta’s challenges, including the possibility that its partner banks have become more constrained in their ability to onboard new programs. He also suggested that Marqeta’s historical focus on program management may have limited its ability to adapt to the changing demands of the market.

Despite these challenges, McCarthy said he is optimistic about the future of issuer processing.

“The opportunity is still just gigantic on a global basis,” he said. “Issuer processing is in its infancy.”

What It Takes to Win

McCarthy said companies like Thredd, with their focus on innovation and strong back-office capabilities, are well-positioned to succeed in this evolving market. Robust back-office operations, including reconciliation, settlement and ledgers, are important. Companies that can provide strong controls and transparency to their partners will be the winners in the space.

He also said he sees a shift in the industry toward the B2B space, calling it a “growth area.”

This growth is fueled by the increasing complexity of B2B payments, the rise of eCommerce and the growing adoption of digital technologies by businesses. Neobanks face challenges in the market, McCarthy said, suggesting that the B2B space offers more promising opportunities for growth and innovation.

McCarthy said he believes companies like Thredd are well-positioned to capitalize on this trend, citing back-office capabilities that make it an attractive partner for businesses looking to optimize their B2B payment processes.

Within B2B payments, McCarthy said he sees particular promise in expense management, supply chain payments and cross-border transactions. Thredd’s platform provides a range of solutions tailored to these needs, including virtual and physical card issuance, expense management tools and API integrations for payment processing.