May 14, 2021
Photo: Google Maps
Marqeta is the fintech company behind your favorite fintech company. For that matter, it's also likely the fintech company behind your favorite meal delivery app or trading platform.
The Oakland-based Marqeta can rightly be described as a payment infrastructure powerhouse. Everyone from Goldman Sachs to DoorDash uses its APIs to launch and operate consumer payment products. That includes debit cards, credit cards and tokenized payment systems. By untethering payment infrastructure from historic (and some would say outdated) processing systems, Marqeta gives companies the means to develop more complex, flexible financial products.
On May 14, the company released its S-1. The amount it planned to raise wasn't immediately clear, as companies typically firm up such details in amended filings.
Marqeta priced its shares on June 8 at $27 and began trading June 9. It finished its first day up 13%, making it worth more than $17 billion.
In its most recent funding round announced in May 2020, Marqeta raised $150 million at a $4.3 billion valuation — which means those investors may have realized a fourfold return on their shares.
Marqeta allows companies to offer Visa or Mastercard payment products to customers without having to deal directly with a traditional bank. (Marqeta itself handles the work with banks; its bank partners include Sutton Bank of Ohio, which accounts for nearly all of Marqeta's business, and MetaBank of South Dakota.)
As of March 31, 2021, Marqeta had issued some 320 million cards. In all of 2020, Marqeta processed approximately 1.6 billion transactions.
The open API system has a few advantages over dealing directly with an issuing bank:
Marqeta makes money by charging a small fee on all of these payment transactions, based on the interchange fee system that payment processors like Visa and Mastercard use. It's therefore in Marqeta's interest to make its APIs as open and accessible as possible, thereby enticing companies to build new products around them and boost transaction volume.
When Marqeta's partners do well, Marqeta does well. Square, by far Marqeta's most important partner, is growing fast, so it isn't all that surprising that Marqeta posted 103% revenue growth in 2020 relative to 2019. The company generated $290 million in revenue in 2020 compared to $143 the previous year. 2021 is shaping up to be even better, as Marqeta made just under $108 million in the first three months of the year, up 123% from the same period in 2020.
Despite the impressive revenue growth, Marqeta has yet to turn a profit. The company actually reported impressive gross margins of over 40% in 2019 and 2020. But significant operating expenses — most notably compensation and other benefits — ended up putting the company in the red. Marqeta lost $47.7 million in 2020, a slight improvement over the $58.2 million loss in 2019. The first three months are pretty much par for the course in terms of profitability, as Marqeta lost $12.8 million.
Three risk factors stand out from Marqeta's S-1: overreliance on a limited set of customers and partners, competition and cybersecurity threats.
One of the biggest surprises in the S-1 was the extent to which Marqeta relies on just a handful of key partners.
Marqeta is going after a highly lucrative market (we're talking trillions, not billions, in terms of the total payment value processed). Though it has strong relationships with powerful institutional partners for now, there's always a possibility that those companies decide to go it alone instead of relying on an intermediary.
Payment processors are always high on the list of targets for cybersecurity attacks, whether orchestrated by state-backed actors or individual fraudsters.