DEEP DIVE is a series of in-depth articles on FinTechtris that explores a particular fintech leader, discussing its history, products / services, and how it has grown to be an industry leader.

“…. to be the global standard for modern card issuing, empowering builders to bring the most innovative products to the world.”

Marqeta’s Mission

Since 2010, Marqeta has powered the next-generation of financial services innovation through its industry-leading card issuer and processor platform. The FinTech unicorn helps 3rd parties like Square, Affirm, DoorDash, Instacart, and Kabbage — build and offer card services through their payments software that issues debit / credit cards. Marqeta’s value drivers offer technology that gives rich control over real-time transaction approval (helpful in reducing fraud), ease and speed of implementation, and extensive program management.

The growth and success of Marqeta is linked to the greater FinTech industry’s success in the last decade, and competition among firms (such as neobanks and lenders) in issuing credit or debit cards to capture market share. Despite the economic downturn from the pandemic, the company’s revenue is expected to exceed forecast in 2020 (coming off a $300M milestone in 2019) — boosted by large, enterprise clients and international expansion.

Let’s take a deep dive on how the company got started, its platform and business model, and what’s coming next for the payments unicorn and industry sector.

HISTORY OF MARQETA

For the company that considers itself the modern path for card issuance, structured on an open API it built from scratch, its early journey was not clearly defined. Back in 2010, Jason Gardner launched the startup to target payments processing and transaction approval / processing. Without a formal tech background (previous jobs included sales at research companies), he founded an earlier electronic rent payments startup (in 2004), which he sold in 2007 for $28M to Moneygram. He raised a Series A round of $5.5M for Marqeta from Greylock Partners in June 2011.

With Marqeta, he worked through various business models (such as prepaid loyalty cards at a discount) before choosing an open-software (API) platform for developers to plug into as a backend solution. This original model of the loyalty card would fail due to the high cost of capital in scaling a consumer retail product. The second iteration created for Facebook as a giftcard for friends released in January 2013, but was shut down the year after due to sluggish sales. In May 2013, Marqeta raised a $14M Series B round from Greylock Partners, Commerce Ventures and Granite Ventures.

After the failed partnership with Facebook, the company out its new funding to use by focusing on being an infrastructure provider and allowing clients to access its platform through APIs, similar to other tech firms at the time (i.e. Twilio). Marqeta made a formal announcement at the end of 2014 of its new offering. After two years of working on its core product, Jason was able to release a completely new payment processor — choosing not to build with incumbents (like First Data) that would be slow and inflexible.

Marqeta has gone on to partner with top card networks, such as Visa (who funded a $25M Series D in July 2017), Discover, and Mastercard. After its recent $150M raise in May, the payments leader in cards is now valued at $4.3B.

what marqeta offers

When it comes to payments innovation, the first wave came from early fintechs (Square and PayPal) that targeted a simple flow for merchant card acquisition and customer experience. Despite a smoother acquisition flow, companies still had legacy payment rails (ACH, checks, wires) to pay out others (i.e. employees, vendors, suppliers), which delayed order fulfillment and inventory orders.

Card programs were an optimal solution, however the cost and time to get this set up was painful — including application and vetting processes from banks without a guarantee of approval (after months of review). The process required established credit histories, large reserve accounts, and upfront deposits and fees. Approved card programs were still subject to features allowed by the issuing bank, and not the company who had applied. It could take up to a year (from the time of application) to roll out a card program . Many companies would settle on general purpose giftcards for employees to make purchases, which had a high potential for fraud and lack of expense management.

Marqeta has accelerated time to market, and provides real-time data and insights for businesses issuing cards (to track customer spend and other key metrics). Through its platform, companies of all sizes can create physical, virtual, and tokenized single (or multi-use) debit and credit cards. A program dashboard (set with a platform’s usage criteria) enables real-time management, and dynamic controls (to restrict access and allow just-in-time funding). Marqeta removes the need for companies to form relationships with card networks, issuing banks, a payment processor, and a physical card producer — these multiple activities and agreements are bundled into one package and contract.

Open (publicly available) payment APIs (like those that Marqeta utilizes) have modernized infrastructure and unlocked secure and reliable access to data and functionality in applications, providing secure, reliable and scalable access to third-party platforms. The rise of open APIs delivers a new world of financial services that is helping to fuel a FinTech wave of innovation. A list of key benefits from Marqeta:

• Issue physical, virtual and/or tokenized cards with a few clicks;

• End-to-end visibility into every transaction;

• All access control (i.e. where, when and how a card was used) with dynamic spend features;

• Fund zero-balance cards in real-time with an exclusive Just-in-Time (JIT) funding feature, which helps prevent fraudulent transactions from being approved;

• Expertise in program management, resources, and customized support for cardholders and platform;

• Deep data insights, reporting and advanced analytic tools.

Marqeta’s primary revenue driver is interchange from daily spend in its platform’s card programs. Depending on the type of transaction and card used, interchange can be 0.5% - 2% of a purchase transaction. For clients that have over $1MM in monthly spend, the numbers start to add up — especially if its a primary card for a consumer that spends over $1K per month. The payments leader also charges monthly program maintenance costs (which scale down as card spend in a program scales up) and setup fees.

FUTURE OUTLOOK FOR marqeta AND card issuance

Marqeta continues to grow at a rapid rate with a team of 350+ throughout the US, UK, Europe, and Canada — and plans to move into Asia. Latin America would likely be a target for expansion as well in the next year. Based on its history and valuation, there are rumored talks of an imminent IPO in 2021.

The investor appetite for payment-focused companies, especially established ones in FinTech, continues to be at an all-time high. More deals are taking place in the form of acquisitions (Plaid, Galileo, and Finicity have all been purchases announced in 2020). IPOs of FinTech companies (recently Bill.com and PayPal) have gained value despite the general economic downturn in the market from the pandemic.

By improving upon on legacy frameworks within the card segment of payments, Marqeta has earned a strong leadership position in the industry. The utilization of debit and credit cards in the next decade may look dramatically different, but for now Marqeta is content with focusing on being the top global card provider. As the market gets flooded with multiple cards for consumers to choose from, anticipate ancillary products and features to become critical for differentiation. We’ve seen companies push for credit-building, custom rewards, and spending insights — all of this will come together in a bundling of services that Marqeta can offer based on its deep experience with platforms over the last 5 years. Expansion into offering standard account and banking services is also likely, as platforms and partner banks would prefer to keep both depository and card issuing institutions as one in the same.

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