All right, we'll get started here. We've got about 40 minutes with Simon, CEO of Marqeta, and thanks to everybody for joining us on Monday morning here at the Morgan Stanley TMT conference. Before we get started with Simon, I do have an important disclosure to read. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative. So thanks to everybody for joining us, but particularly Simon, thanks for joining us here to chat about Marqeta. Maybe we'll just start with a kind of preamble commentary. For those of you in the room or online that aren't familiar with your business and how it has evolved since the company has come public, can you give us a brief overview of Marqeta and some of the pain points, if you will, that you're trying to solve for your customers?
Sure. First, thank you so much for joining us this morning. I know you have a lot of choices, and you being here means a lot. Yeah, I mean, Marqeta started in the modern card issuing space, capitalizing on all the innovation that are happening in financial services, in general, and then payment in particular. About a decade ago, the vast majority of the innovation was happening on the acquiring side with the phenomenal growth of online commerce. We've seen a lot of innovation on acquiring, effectively integrating payments into the workflow of online commerce. But Marqeta started that innovation, that wave, on the issuing side. The ability to issue modern cards and offer consumers and businesses the ability to issue cards and integrate that card into the day-to-day workflow of these applications.
So no question that virtual cards and Apple Pay and Google Pay or all the payments have given a huge boost for Marqeta. But the most of the use cases are neobanking, buy now, pay later, expense management, on-demand delivery, and last year, we've added accelerated wage access. We've added credit to help us in the embedded finance space, which is an expansion of fintech. So that's kinda like Marqeta in general.
So, you know, last week, you reported your earnings and to close out 2023. We basically have two months of this year already in the books. But what are you looking forward to accomplish this year? Kinda what's the to-do list we should be tracking?
Sure. I would say that last year, we have revved back up the sales engine at Marqeta. And our bookings were 50% up year-over-year. So the first priority is to convert these bookings into gross profit. So that's number one. Number two is, we started the work on accelerated wage access and SMB credit, which is something we were not expecting. The SMB credit was new demand that we didn't set our eye on. So that's growing big. And last but not least, so delivering on those two. Last but not least is the new generation of co-brands, which is working with the digital brands and embedding the payment vehicle or the co-branded card into the digital workflow so that you are actually changing commerce, not just changing the payment vehicle. We think of a card as the most adopted technology product ever built. If you look at a payment card and think of it as a digital product, it has more distribution than Google and Facebook combined.
Right.
If you look at the frequency of use of a payment card, it is roughly, in the United States, 2.2 times a day for a U.S. adult. Now, the most addictive digital product today is TikTok.
Right.
TikTok is used 2.1 times a day adjusted to the U.S. adult population reach. So a payment card is more addictive than TikTok. That's how Marqeta thinks about it. So if somebody, any digital brand adopts a co-brand and makes it a digital product, they have an addictive product more addictive than TikTok. So and then that will contribute to their daily active users. That will flow down into more sales, more advertising, more whatever they're selling. So that's a big growth area for us and a big priority in 2024.
So you talked about a lot of different things there, but I wanna go to the credit component here for a minute. You recently announced two credit customers in ITS and AffiniPay. Can you talk about these deals? In what ways do you view them as being meaningful? And what can you offer these companies where that they couldn't really access or do before?
Sure. So, AffiniPay is an aggregator. They're a platform for professional labor, which is attorneys, accountants, so on and so forth.
Okay.
ITS is effectively it's a relatively, I mean, it's a mid-sized company that offers travel cards. But their customers are very, very large and very prominent. So the beauty about those two use cases we announced is actually they are completely different use cases.
Okay.
What they have in common is SMB credit. That's a segment that when we made the acquisition to add credit to our portfolio, credit program management, we anticipated the demand for consumer credit, but we never anticipated the demand for commercial credit. So that is coming to us. But the breadth and the diversity of the use cases, right, is what gives us the hope and gives us a good strategy that this is a platform. This is not a single use case that is gonna be concentrated in one market segment. So between travel and attorneys, there's a nice spectrum of things we can go and repeat over time. But the core value proposition here is, I'd say, serving the SMB community because no bank wanted to touch it because they did the small to medium-sized businesses.
They are businesses, but they act more like consumers. So it's kinda like the middle that no one wanted to serve. But these platforms have great visibility into the SMB performance 'cause they through the aggregators, they generate the revenue, or these aggregators have great visibility into the financial performance of these SMBs so they can help Marqeta through alternate lending or through the ability to underwrite them differently. So that's, I think, what the value proposition here is.
So how do you think about the pipeline for credit engagements between commercial and consumer? You know, if commercial has been a little bit of a surprise, does it have the potential for you to be bigger, or is it just additive? Like, how do we think about that pipeline potential?
Yeah. Yeah. So, I mean, our pipeline is growing fast on credit, in some cases, faster than we have anticipated. The core here, for us is deliver on the first few programs because we're kinda newish to credit and doing a great job. So the pipeline is mixed, but I would say that on the consumer side, we wanna be very selective and be able so we're not gonna go and turn Chase Sapphire, right?
Right.
That's not the goal here. I mean, maybe in 40 years. But right now, the focus in looking at the great brands, the great applications on every smartphone, and making sure there is a payment card, there is a credit card embedded into the flows. So it is an engagement tool more than it is a payment tool. So that's the focus on the consumer side. On the SMB side, it is looking at marketplaces and serving the supply chain. Like, you look at these phenomenal marketplaces, they all work with SMBs, and all of them have cost to capital.
Right. Right.
So the marketplace goes defunct if the SMBs don't deliver. So that's where our focus is. But I'd say our pipeline is mixed. There's consumer, and there's commercial.
So you said a few things there, but I wanna come back to those. But first, I wanna kinda lay the groundwork and talk about the competitive environment. And a lot of the competition in the space seems to originate in the single-use virtual card area from the likes of Adyen and Stripe and Galileo, among others. And it seems like the two biggest factors that drive these outcomes are both price and redundancy. You know, are you winning because of your lower price, or are you the backup? I think it's well understood that your offering deserves a premium price, but it also seems that given your position as the incumbent in the space, competitors can at least have an opportunity to take some of the volume, at least from a redundancy perspective. How do you think about that and, you know, how do you make sure that the redundancy component remains a minority at these customers where you already have position?
Sure. So, I mean, let me start with the good news is that the majority of our growth is coming from use cases where our moat is significantly higher.
Okay.
Which is programs in which program management so consumer programs mainly, or SMB or many others. So where we faced competition the last, I'd say, 24 months is exactly in the single-use commercial virtual card. So that could be technically swapped. It's a one-time use, so the next time, you can choose a different supplier.
Somebody else, right.
Right. So, and there, I think, I mean, Marqeta invented.
To be clear, just, like, the use case for people that aren't familiar, maybe this is like a Grubhub order or something like that or whatever it is.
It's no. It's more like, buy now, pay later.
Right.
And I'll give you the distinction because there's something really interesting happened in buy now, pay later.
Okay.
If we go with the basic use case, let's say a buy now, pay later provider integrates into a merchant. Let's say, just as an example, Affirm and Macy's. They have an integration. And or Klarna and Macy's. Then you go and you see the Klarna checkout with Klarna and Macy's. You click, and you checkout. Marqeta generates a virtual commercial single-use card, settles with Macy's on behalf of Klarna, and then Klarna actually collects from the consumer over four installments. That commercial single-use virtual card is what people refer to as the area that is that has competition for Marqeta. Now, there are two things. One is, yes, price. The second one is redundancy. But redundancy doesn't mean we lose 50% of the volume, right?
Right. Right. Right.
You just need to get kinda water through the pipes for redundancy perspective. But if you look at BNPL specifically, one big area in BNPL is integration of BNPL into a payment vehicle versus a merchant, which is BNPL everywhere. That's the market where Marqeta has a much higher moat, and that's growing faster than the integration of merchants. It's now 10% of our buy now pay later volume, which is up from something that was insignificant in 2023. So, and that's a trend. I'd say that Apple has made mainstream because in Apple Pay, there's Pay Now, and then there's another tab called Pay Later. So if you look at distribution channels for buy now, pay later, it used to be just the merchants. Now, all buy now, pay later are integrating into either a wallet or building debit cards on their own, like Affirm, or integrating into any payment vehicle. And in that space, these are consumer programs in which program management is hard to duplicate. You have some of the companies you mentioned do not play in that space. But also, Marqeta has a much higher moat in that.
Got it. Got it. Got it. I wanna ask on the credit side. You know, you said that winning Chase Sapphire may be 4 years out or something like that. But I have to say that it seems like the way that you've talked about going after the incumbent space, if you will, seems to have improved, or at least you seem more optimistic about that maybe than I would have thought 12 or 18 months ago, when you first took over the role as CEO. Can you talk a little bit about the evolution, what you're seeing there, that's giving you, you know, that you're seeing some opportunity for traction and time to conversion that we should see, you know, could maybe start to hope for?
Sure. Yeah. Absolutely. I mean, I'm gonna use this statement. I mean, first, they ignore you, then they laugh at you, then they fight you, and then you win.
Right.
Right? I mean, if you look at the beauty of what we are doing is making payments in general and co-brands in particular part of the digital experience. So if you look at these gorgeous brands, whether anywhere, it's from, like, Airbnb to TikTok to Instagram to Uber to Instacart to all these. I mean, you look at them, and you look at a banking app, it looks different.
No, right.
I mean, we don't need to go further than that, right? And that I'm not talking about visual design. I'm talking about the customer experience. So the customer experience is so unique. Everybody's focused on a great customer experience. And, if that is available to the banking industry through Marqeta, then everybody wins. So but the project I mean, what the fintech crowd has done, and a lot of them are built on Marqeta, they've built great products. Some of them had distribution. When distribution occurred, great things happened. But some of them did not have distribution. So our focus on embedded finance is going to the folks that have massive amount of distribution and getting the financial products embedded in that. So that's stage two. Stage three is, when the banks realize, the large banks, that, "Look, I like what these guys have built.
It's the same business model, but delivered to consumers in the applications they love, and the economics are the same," that's when I think our effort will go towards the large financial institutions and work with them, first on the commercial side, which they're facing competition today from the Marqeta customers on the commercial side, like expense management, then on co-brands and eventually their own branded cards. But that will be in the 2025, 2026 time frame.
I guess.
26 time.
Yeah, yeah. And that's understandable.
Sure.
That makes sense. But on those big banks, if the first opportunity is to win kind of new products from within those banks.
Sure.
Where are they in terms of being able to build the tech stacks to catch up such that adoption of Marqeta becomes easier? I mean, do they need to start from scratch with these new products, with a new tech stack, or, or how much can be reused from their existing? Like, what's, what's your conversation like with them there?
So it will take time. I'd say on the commercial side, it's much easier. Significantly easier on the commercial side. And that's where they're seeing the highest pain points because, you look at the emerging, I'd say, expense management players like a Ramp or a Brex or what have you, mainly Ramp. Their larger banks are facing competition from these players. They want the same functionality that those players have, and that comes from Marqeta. So their ability to do that is significantly faster than their consumer programs. The second thing I'd say is most of them do not have their own processing. They use either Fiserv, TSYS, or FIS. So the migration to Marqeta would be seamless, from those players when the time comes.
Got it. Got it. Got it. I've been monopolizing questions. If anybody in the audience has questions, please feel free to raise your hand. We'll get you a microphone. But I wanna then go to you one of the other topics that you mentioned, earned wage access initiatives. On your conference call, you mentioned that there had been some accelerated wage access, volumes was, growth and, and was up to 3% of fourth-quarter TPV, you know, which was from a basically negligible amount the previous year. Can you discuss that opportunity, what your offering is, and, and, like, how fast or, or how quickly or how big could that become for you?
We've been declarative, but at the same time, very excited about the, the space. I mean, let me start with the basics. This is a $2 trillion market. If you look at it, there's 83 million Americans that are either shift or gig workers. And they're about 7%-10% of the U.S. GDP. Let's just stick to 7%. That's $2 trillion o f production. We have started offering this accelerated wage access about a year and change ago, and the growth has been insane. I mean, one thing we didn't mention in our release, it's not just 3% or roughly call it $8 billion, $7-$8 billion.
Yeah.
Right? It's actually 2 million families. Two million families are now being paid instantaneously. So, now, while this is a really good metric, it makes us feel good, it is very, very accretive from a unit economics perspective for us. So let's start with all the parties involved. I mean, the first one is the employer. So, what they get is higher loyalty from their employees, but also, it's not costing them anything because right now, if people work with the Marqeta construct, we talked about Walmart. We talked about Uber. We don't charge them anything to do payroll. I mean, payroll is not cheap when you do it on demand. It's relatively inexpensive if you do it in batch. So they have the line item on the cost side that goes to zero.
Then the employee gets paid instantaneously, which is, and that community lives paycheck to paycheck, and they're subject to 29% APRs from credit card if they can ever get credit, and on top of that, 7% inflation. So if they get paid immediately, right, that they are saved from the 29% APR. So the way we do it is, the moment, so we put it on a card. When, let's say a worker checks out of the job, they get, we move the ledger. We don't move the money. But then, whenever they go spend, that's when we actually deduct it from the working capital of the company but also pay the company the interchange. That is generated from these cards. So, we're creating a win, win, win situation. That's why we believe our construct will move very, very fast.
Right. So expenses. Those decreased dramatically throughout 2023. And in the Q4 , they came in lower than at least we had expected and modeled. Can you discuss what's, you know, happening from an expense perspective and contrast that or help level set us for where the areas of investment should be in 2024?
Sure. I mean, I mean, I joined the about a year ago, and our CFO joined a few months before. And I'd say that we, we took a look at the expenses, and we brought down the headcount of the company. But that's not the only thing we did. We've saved a lot on technology expenses, third-party costs that Marqeta was incurring. And we looked at our overall cost structure, and we've done a great job at it and continue to do so. Like, in terms of going forward, we just booted up Poland. Let me take a step back. The vast majority of our workforce is in the United States. All our technology is built in the Bay Area and New York. So we have opened up Poland, which is lower cost per employee, especially in risk operations, backend engineering, so on and so forth. So that will help us get higher headcount at a lower cost. So that's one. We continue to do a lot of optimization work on the technology, so that we reduce the technology third-party technology spend. So that will help on the expenses side. And the other thing I'd say is remain laser-focused. I mean, the beauty about the financial services industry is that there's trillions of dollars everywhere you look.
Right.
The problem is that the curse of the fintech or the financial services industry is there's a trillion-dollar everywhere you look. So you end up looking everywhere. So with Marqeta, we decided, "No, no. We're not gonna do that. We are gonna focus on the use cases and make them better." So it's discipline in spending. So the priority, this year is, "Let's get phenomenal growth in accelerated wage access. Let's get phenomenal growth in SMB credit and the co-brands," in addition to the, I'd say, the fintech use cases, which is neobanking, buy now, pay later, on-demand delivery, as well as expense management. So being laser-focused to that. The last thing I'd say is, it's I mean, you're never done in software. You're always building. But the heavy lifting has been done, like the strength of the platform, being able to operate in a hot environment, multiple data centers, and be able to provide the redundancy. I mean, I think we've demonstrated when we announced last week that we've crossed $1 billion in processing volume per day, and our uptime remains in the four nines and the five nines. So I'd say the majority of this investment has is behind us.
One of the metrics that you offered is proof of that improvement was the time to Ramp. I think on the most recent call, you discussed that the time to Ramp new deals had improved significantly, up to as much as 100 days faster than in 2022, etc. What changes specifically has led to that improvement? And how should we think about the implications for bookings of 2023 and its time to contribute revenue?
Sure. I mean, what we guided in our investor day, actually, they had that baked in. So yes, we've done a lot of work on speeding up delivery. And, I'd say the majority of that is building what I would call ready-to-use constructs that the banks would approve from a regulatory perspective. So we call them Marqeta- in- a- Box. Like, a lot of the embedded finance use cases, or embedded finance companies are not fintech savvy nor financial services experts. Like, they have great ideas, but the regulators would not, or the banks would not take on that use case. So with a small tweak, we will work with the banks and the regulators to approve those use cases.
So, I mean, the Silicon Valley loves to innovate, but sometimes, they never read that little like, the nice brochure that comes with a credit card that has fine print you need to, like, put a something to look at it. So but those are important. Consumers care about those. So our ability to guide the embedded finance players into standard constructs that the regulators would celebrate and the banks will take on is the number one thing we've done. The second thing is we integrated our in-house solutions architect with our integration engineering team into single-threaded leadership. So they're involved early on in the sales cycle. So let's not talk about beautiful constructs that the regulators are gonna reject.
So from the early days of the sales cycle, we're guiding our customers towards the construct that the banks and the regulators will celebrate. And that, I think, added a lot to speeding up the program launches. What we're doing this year, in order to improve on this, is sharing the best practices. So how do you launch a program? How do you market a new program? What are the best practices? What disclosures do you have to put? How do you incentivize adoption? Like, for example, rewards management. You're changing consumer behavior. Like,
Yeah.
We love rewards. I mean, American consumers love offers. So we work to design a rewards strategy. What does it mean? Same thing with small businesses. How do you translate covenants, which is a legal document, into Marqeta controls? Let's say if you wanna give a credit to a small business, and they go spend it on Facebook and Google for performance marketing, and they have absolutely no idea how to optimize, right? You can block that in the Marqeta. So the loan will go further and only used for supply chain management, for labor, so on and so forth. So we believe that these, those guidelines and best practices, will not change the launch time, but they will improve on the Ramp time.
Got it. And then, you know, in terms of capabilities and particularly incremental capabilities, over time, there have been cases where Marqeta, which has heavily been built from the ground up, but there have been times where you've done acquisition to accelerate time to market, etc. How are you feeling about your, your current range of offerings? Are there should we anticipate or think about potential to, to accelerate time to market in different areas through acquisition? Is that part of the strategy? Just help us think about, like, on a go-forward basis, that, that portfolio development.
Yeah. I mean, we think of an acquisition as a tactic, not a strategy. So, we are fully featured right now. I mean, with our acquisition of credit, it's kinda rounded up the.
Yeah.
The Marqeta solution. And you look at the pipeline, the foreseeable pipeline, and we're looking good in terms of. What we have. So, I would say that we're gonna be opportunistic. Some of the deals we'll be looking at is, I'd say, deals that only a payment geek would enjoy. So, kinda, like, deep into the program management compliance, the how do you market a program, in a new way versus how the financial services industry has done it before. But I would say we're very comfortable with our tech stack, and our ability to respond and fulfill on the fast-growing demand. For everything, we're good.
So you mentioned a couple minutes ago at your most recent investor day that you'd outlined some targets. And I just wanted to tick through those, then just kinda get from you a sense of where the potential variance could come from, etc. Is that, you know, I think if I'm not mistaken, you outlined growth targets through 2026. And in the 2025 to 2026 timeframe, we're expecting mid-20s% net revenue growth, low-20s% gross profit growth, mid-single-digit to low double-digit% adjusted EBITDA margins while anticipating GAAP net income profitability by 4Q 2026. And GAAP seems to be an increasingly important metric for people within this space. And look, in that presentation, I think you and the team did a fantastic job giving a detailed breakdown of potential renewal dates, price compression, etc. But how are you thinking about the achievability of those targets and versus where could we expect to see or potentially see variance, both positively and negatively, on those?
So, you know, every plan you put in place is defunct the moment you put it out there.
Yeah. That's right.
The management team of Marqeta is all new. We have years and decades of experience. It's all about being, trying to be as close to the puck as possible and leave some room for, like, positively surprising investors, so and unsurprising, like beating the numbers. There's risks, and there's opportunities.
Sure.
But I would say from the position we are today, the opportunities are higher than the risks. But we still have made assumptions about the macroeconomic conditions remaining the same. But, but we feel very comfortable about the numbers we put out in Investor Day. But as a team, we're always focused on how can we move faster. There's a lot of programs that we're working on that have the ability to move very fast. Accelerated wage access, and the beauty of that construct is moving much faster than we anticipated. And honestly, it's a great value proposition. We can go replicate. The market is big. The competition is at bay. It's what I mean, what we built is not easy to repeat. So, SMB credit is another area that is something we did not anticipate. So I'd say we have, at this stage, on SMB credit, more demand than we have supply. So there's some things that could go faster, but I'd say our comfort level in the numbers we've put up is high.
Got it. Got it. And, and when we think about things like SMB credit and credit in expanding credit more generally, how do we think about that as far as, through a macro cycle? Does that introduce more cyclicality to Marqeta's business over time, or not really? Like, what's your, your sense of safety?
It's, it's a great question. Great question. Look, we're new to this. And I and I look at that very, very carefully. And, if I look at buy now, pay later, and there was a lot of concerns last year.
Right. Right.
About the debt, the debt stack that this is piling up. But I mean, I hate to say, but if people have to look at basic arithmetic, right, the debt stack as a percentage of GDP has declined, not gone up.
That's right.
But we don't know the distribution of that debt. So, are the rich taking on more debt? And effectively, the 67% of Americans are being crushed; we don't know that. But if you look at what buy now, pay later has done, right, is transaction-level underwriting versus human-level underwriting. So it is significantly less risk than revolvers. So it's a great thing. And it's also opened up the credit box to, I'd say, tens of millions of Americans that did not have it. So what we have seen, given that they continue to lend, the repayment schedule is very healthy. However, we are seeing the buy now, pay later seasonality diminish because as you look at what people are using buy now, pay later for, it's not just retail and holidays. They're using it for travel. They're using it for groceries, so on and so forth. Now, on the SMB side, most of the credit demand we're seeing is supplier payments.
Right. Right. Right.
So their ability, I mean, with working capital at prime plus 1.5%, right, now, I would say stretching out your working capital is meaningful. So the era of 0% interest rates is gone. So I don't believe that's cyclical. That is gonna be supply chain payments is gonna probably ebb and flow, but it's continuous throughout the years.
Got it. Got it. Got it. So lastly, to wrap up with you, Simon, you know, and we kinda alluded to this earlier, but sitting here today, what are your key to-dos and things that maybe kinda keep you up at night that you're worried about as we go into 2024 and really starting to look forward to the targets that you set out for 2025 and 2026?
Look, I mean, I wake up every day so excited by this industry. My energy level is so high given the diversity of the use cases that are coming to us. I mean, most of our day is spent with customers or potential customers that are the most brilliant minds in the U.S. and the innovators. It does and we're not talking about Silicon Valley. We have brilliant people inside very large organizations that are 120 years old that are thinking about how do you embed financial services into the workflows. I mean, big-box retailers, large employers, massive digital brands that are not in financial services. So, we feel very, very good about our position. I mean, to the point where the, in the next 2-3 years, the way people interact with money changes, completely.
And the way people would interact with a payment card, it is gonna be how you interact with your Instagram feed, with your X feed, with your whatever, whatever addiction people have formed in social networking. It's gonna happen with financial services. So very excited about that. Like, what keeps me up at night is our ability to deliver. Like, we're still a small company. And some of the brands we work with are extremely well-established, and they care so much about their brand equity. Like, we wanna make sure that we take almost no risk with these brands from a program management perspective, from a compliance perspective, from a Reg E, Reg Z compliance. We wanna give them an experience that is superb without having them to worry about it and tarnish their brands, because they have no financial services equity.
Right. Right. Right.
So I think that's where we see our role. And then also, you know, at the end of the day, regulators care about the consumers. And we do too. So we care about the end user, consumer experience. I think that's an area that I'd say I spend a lot of time thinking about and what can we build, and where can new technology like Gen AI reduce the risk, improve underwriting, reduce the customer service burden, and honestly, generate money.
Wow.
We're excited about that.
Well, Simon, that's all the time we have. Thank you so much for joining us today. Really exciting. And appreciate you taking time to be with us here at the Morgan Stanley TMT Conference.
Awesome. Thank you so much. Appreciate it.