Hi, welcome back, everybody. Very pleased to welcome Mike Milotich, CFO of Marqeta here today. Thank you, Mike, for being here.
Happy to be here. Good morning.
Let's jump right in and give us an update on your addressable market. W hen you look at the business today, versus at or even before the IPO, it seems like the, the universe, your addressable universe has evolved a bit, perhaps, but what do you think?
Yeah, T he total addressable market is the same, but how we're going to capture that opportunity is certainly clearer now than it was three years ago at the time of the IPO. Just stepping back, if you look at Visa and Mastercard volume in the U.S., Canada, and Europe, which is primary markets where we operate, as well as you throw U.S. PIN debit volume in there, the total market size is about $15 trillion, a little over that. W e capture only 1.5% of that market today. T hat market is growing still at a pretty good pace. T here's an incredible opportunity for us to still grow at a very fast pace for many years to come.
Our success started with fintechs. I nnovative companies who are offering a unique user experience, and they really showed what was possible for non-banks to be successful in financial services. T hey had to do it. They were sort of running uphill, because they had to build a user base from scratch, which is very difficult. They're still growing now quite fast, but the next wave of growth for us, we're seeing, is in embedded finance, where these are established companies who already have user bases, and they're just looking to insert financial services into them. T hat creates an opportunity to ramp business much faster because that user base already exists.
This market is also growing fast, but it's estimated that it's growing at a 20% CAGR, and it's expected to be around, $7 trillion by 2026. T his is a very fast-emerging part of the business, and we're very well-positioned to help service that market. T his includes things like accelerated wage access, which is about, you know, $2 trillion. A ccelerated wage access is a great example of a problem that people have been looking to solve for a long time, but it really needs more modern technology. It's becoming addressable because of the advances in technology. B2B is another big category. C ompanies are looking for streamlined operations, easier reconciliation, automation. That all lends itself to the electronification of payments.
What we're also seeing is there's a lot more aggregation of SMB businesses, either through software platforms or marketplace type structures, which gives a lot of companies a unique perspective to offer financial services to the SMBs that are on their platform or in their marketplace. T hat's a huge opportunity. T hen the last one that we see for us is co-brand credit. Today, that's not an embedded use case for the most part. Usually, you're going to the bank for that, but we think it should be and will be. T hat's an existing use case that's over $1 trillion in size, that's not really embedded today, that we think will be in the future, and that's what creates the opportunity for us.
Give us a little more detail on the earned wage access opportunity. W hat can you provide there? What is the sort of value proposition of your products? What types of customers are you providing that service to?
Yeah.
Provide that service to?
Yeah, so what we're looking to serve, there are over 80 million shift and gig workers in the U.S. A lot of those people are living paycheck to paycheck and would really value getting the money that they've earned. T hey've worked a shift, and they worked a shift yesterday, and having access to that money rather than getting paid every other week or even once a week. T hat's really the need. C ompanies are looking to solve that to improve retention of their employees, because there's a lot of competition for labor. T hat's really what's creating the market.
What the traditional players in this space have often monetized by charging the employee to access those funds earlier, almost like how you would pay a fee to use an ATM that's not associated with your bank. T hen they will sometimes take advantage of the float, so would get the funds from the company in advance, and that's another monetization engine for them. What we're offering is unique because we don't monetize on either of those, on those levels. We're allowing a company to. When you can pay the employee sooner, but that's really just a change in the ledger, no different than in your bank account. You look at your balance, it shows you a balance, but that doesn't mean the funds are actually there. The bank has put those funds to work. T his is the same concept.
The employee sees the balance, but the money is still sitting with the company, which allows them to be earning interest on it. T hen only when they spend does the money need to arrive. I t gives a working capital benefit, and the employee is not being charged, to do that, and we are monetizing just the spend like we do today. I t's, an exciting opportunity. Just this quarter, we announced a partnership with Rain, and that sort of highlights how we're targeting the market sort of in, on three levels of distribution. W hat's exciting about Rain is they have integrated into several payroll platforms, so they have a lot of payroll expertise.
F or their customers, they have many large customers, particularly, franchise businesses, and they offer a Rain Card and they will use our platform for that. T hat sort of targets the mid-market, if you will, where there's a lot of franchises, and we're not really set up for that type of model. We're going after the large enterprise space. W here the Rain partnership help with that is our current customers we bring our processing capabilities, but we make them still do a lot of the work on the payroll component. O ur strategy is to partner with people like Rain, and ingest their APIs in our platform, so that we can offer a more holistic value prop to our enterprise customers. W e can not only bring processing capabilities, but some of the payroll components as well through partnership.
T hat's an exciting addition to our capabilities once we do that work to kind of integrate those capabilities. That's our plan. T hen there's a third part of the market, which is labor marketplaces, where a lot of companies are sourcing their shift workers from these companies that their whole business is finding this labor and training it, and optimizing the kinds of jobs that they find them. T hose are another area that we're targeting to help reach this very large market.
Do you think, earned wage access will evolve over time into a, an important vertical? O f your businesses, and then I want to get into some of these other verticals a little bit.
Yeah.
Will we start thinking about earned wage access as its own, its own thing, as it were, over time?
Yes. I'd say yes and no. I t'll be a big driver of the business. We think it's gonna be a growing business in general, and we're well positioned to provide a lot of value. W what we also see is it's merging with sort of neobanking. A lot of companies that are doing this, they're really saying, "I'm gonna offer you banking services." This is just the start, right?
Mm-hmm.
T he lines are gonna blur a little bit between, is that a neobank, or is that purely a wage offering? M ore companies will look at it as, "Well, I have a co-brand like card, and I give it to my employees, and they can access their wages on it, but I'm also giving it to my customers.
Mm-hmm.
T he lines will blur over time.
Good growth, but hard to know where it falls into the end of the system, as it were?
That's right.
Okay. W hat about some of the other verticals? I wanted to ask about expense management. That's been a really important vertical for you guys. It's grown quite quickly over time. G ive us kind of an update on the vertical, t he health of it? W hat your expectations are there?
Expense management's been an area where we're a big source of growth for us. It's in the low teens percentage of our volume today. H ow we're successful in that market is because of the flexibility and configurability of our platform. What companies are looking for is they want to have seamless, embedded, kind of like payment capabilities for either their employees' corporate cards or for AP payments, and they want it, the reconciliation done in an automated way, and they want to make it easy for their employees as well. I t's a good user experience inside the company, and our platform really allows for that. We can offer many different card types, whether it's a card that is, like the card that's probably in your wallet, you can sort of do anything with it.
We can offer a card that's only, only works in certain days or only for certain types of spend. Y ou can really restrict down to control how that card is used, and therefore reduce fraud among within your company. A single-use virtual card for truly like one-off payments. A ll that can be done by a non-technical person on our platform to configure the card in real time. AT hat's what makes our platform very unique, and why most of the very large companies in the space utilize our platform. I'd say with the addition of our credit capabilities, another opportunity is emerging, which is a lot of businesses today already make loans to their small business companies on their platform. Many of the payments companies do this.
We're offering now, through credit, an ability to put those covenants that are tied to the loan in software. R ight now, rather than it just being a legal agreement, what you can spend that money on, you could extend that loan via card, and then actually restrict what that, how that money can be spent by configuring the card accordingly. I t can only be used to buy raw materials. Well, then I can remove a lot of MCCs that card will not be used for. N ow, as the person who gave the loan, I can see exactly when you spent, where you spent, so I have a lot more visibility. W e think that's an area of the growth for us within expense management.
F inally, all the success that we're having in expense management. This is an area that was traditionally either dominated by large banks and Amex, this space. Bill and Ramp, and companies like that, are starting to really become very large businesses. What we're, we're finding is that we think that will create our entry point into the large banks. T hey are losing that business today because they don't have the capabilities that those providers offer, in terms of the flexibility, the control, how embedded and how easy the user experience is. N ot within the next three years, but when you look out 3 years-5 years , we think another, the next sort of wave of growth, even after embedded finance for us, will be financial institutions. It's likely these capabilities that we have in expense management will get us in the door initially.
Y ou mentioned credit, and I want to talk about the credit, the broader credit opportunity. I also wanted to get your, your opinion, as you guys have a very kind of privileged vantage point, as you're the service provider for a lot of the players in the space. W e're hearing more about, kind of buy now, pay later cards. C ards, it's kind of structured a little bit different than typical credit card. W e had, for example, yesterday, a company called Upgrade on stage talking about it. We've heard Block talking about exploring one. We have a Affirm Card. H ow do you think, maybe this is more of an industry question, although it obviously ties back to Marqeta's opportunity?
Mm-hmm.
What do you think about that product? There seems to be a consumer demand for it?
Absolutely. W hat we originally solved, we have over 30 BNPL customers, so we do have a unique vantage point on the market. The original problem we solved was merchant acceptance. A llowing users to use that BNPL offering, but without the merchant having to do a technical integration with the BNPL provider, that was the original problem we solved. What's happening, is that as these companies have built large consumer bases and following, they're saying, "Why would I only limit it to where my mark is on a website, right? That's a limiting factor.
Why don't I just engage the consumer directly, give them a card that can be used at any card-accepting merchant, and then just offer buy now, pay later as a feature of the card?" T hat just grows the market opportunity for them. I t's very smart, and several of our customers are doing that on our platform. It's a very fast-growing part of our business. O ur BNPL business overall has been growing a little faster than the company, so call it, like, in the high 30s. A bout 15% of our TPV in this last quarter was in BNPL, so 15% of our BNPL TPV was from this type of use case, so an installment card, if you will.
That's up from only 3% of our volume in Q1 of last year. T he traditional BNPL business, if you will, that's so more of the merchant acceptance use case, is growing about 10 points slower than overall, so call it growing in the high 20s%. S till nice growth, but the installment card volume on our platform has grown 7x from Q1 of last year. It's definitely a big growth engine, and, and exciting for us because it also. We've talked a lot about, and I'm sure we'll get to it, the competitive dynamics. YW hat we do in the traditional BNPL use case is a single-use commercial virtual card, which is one of the most competitive areas of our business. I f that volume shifts to a consumer-facing card that's much stickier, it has a lot more complexity we think that plays in our favor over time.
W hat about credit more broadly? Y ou've touched on it in a few different instances. You talked about some B2B credit, but talk about maybe Marqeta's broader credit opportunity. Obviously, that's a big part of it, but-
It is. Like we've achieved a lot of success, but to date, we've done it really through debit and prepaid. C redit not only expands the opportunity and the number of use cases that we can serve, but it also, in general, just makes our platform a lot more attractive. A ny large embedded finance company or even as the fintechs so the winners have been crowned in many of the markets, and they're becoming very big businesses. T hey're looking to broaden their offerings, and so people want a single provider to have many different types of programs. H aving the full suite, w e think makes us very attractive because then we have credit and debit, consumer and commercial, multinational, hundred percent modern we think that puts us in a unique position.
We have signed two customers, both on commercial use cases, and we have a pipeline full of both consumer and commercial use cases. W e're taking it slow. We're trying to make sure that we walk before we run. W e're very targeted in the type of credit customer we're going after, where we think we are differentiated, because it is an established market, where there's many competitors, already operate. W here we're looking is on the commercial side. We're looking for companies who are likely a platform-like business and wanna embed-
Mm-hmm.
The product inside. Like, I've sort of already mentioned a couple examples of that, so that's sort of who we're targeting on the commercial side. On the consumer side, we're looking for digital-first companies that are looking to do something more than just loyalty, which is what a lot of co-brands today are targeting at. They wanna do true engagement. T hey wanna drive more top-of-funnel activity from their customers, meaning they wanna drive more spend in their business, not just drive loyalty towards their brand. H ow we will do that is with dynamic rewards. W think the future is coming as a dynamic, real-time, personalized reward, which is what today's consumer is growing to expect. As technology is just evolving in your everyday life, everything is becoming more personalized, and it's more about your experience and everything.
Our platform, because of its modern capabilities and this real-time rewards engine that we have, we feel like that's where we will differentiate. W e're looking for those types of customers to really show others the power of this, and then we'll be ready to go broader. T hat's our strategy now.
Okay. Let me ask you a CFO question. Stock-based compensation, maybe you could kind of remind us of some of the dynamics going on right now? Jason transitioned from executive chairman to board member, and there was a forfeiture of an IPO grant. I'm just trying to think about impact on share-based comp and stock-based compensation and how it should trend?
That's right. A s Jason stays on the board, but no longer as executive chair, he has forfeited or will forfeit his pre-IPO grant that he was given. T hat will cause a reversal of $158 million of stock-based comp that we've booked from the IPO through Q1 of this year. I n Q2, we will book that reversal. I n addition to that, we will not end up incurring $32 million of expense that we would have booked from Q2- Q4 of this year. I t's roughly $11 million per quarter, and that's what we would have booked otherwise, but with him forfeiting it, we will no longer have that expense.
Then there's an $18 million of expense in 2025 also that we will no longer incur, that's associated with the amortization of that value based on the accounting rules. T hat's the benefits that are coming from the forfeiture of Jason's grant. In addition to that, though, we are being a lot more disciplined in our stock-based comp, and it won't necessarily show up right away in the P&L because it's based on vesting of prior grants. I f you look at the grants we gave employees in Q1 of this year, in comparison to Q1 of last year, our average grant in terms of shares per employee declined 21%. W e also have fewer employees after our restructuring last year, the total shares granted is down 34% compared to last year.
It is an area where we're the attraction and retention of talent is still a very important part of our business. I t's still an important lever for us, but we are trying to get more disciplined, more targeted in how we use that on our path to profitability.
Okay. I want to ask about the competitive environment and there are quite a few people who kind of hang their shingle out and sort of offer somewhat similar solutions. It seems like you guys have a kind of a more fleshed out, a mature platform, as it were. H ow are you seeing the competitive environment right now? Are you seeing any threats emerge? Are you seeing the same people across the table? Who are your competitors?
Yeah, I would say the competitive environment is stable and steady. I n the last year, we haven't really seen any change in the dynamics. We tend to see different people depending on the use case. A mong the modern players, we have the most scale and the broadest array of capabilities on the platform. T hat means we're invited to most RFPs or most, as the company's doing their homework, you know, they tend to engage with us. T hen depending on what they're trying to do, will affect who else we, we see in the process. I f it's commercial program, then we're much more inclined to see Stripe, for example, would be common. I f it's a consumer program, we might see Galileo a lot more frequently.
T he dynamic is relatively steady and stable. The single-use commercial virtual card is the most competitive part of the business. That is something that's really just easier to do. T hat is an area where, there's more competition and there's more price pressure. T he rest of the business, I would say, we're not seeing any change in the dynamics. I f anything, there's a little bit of a flight to quality happening right now.
As there are more disruptions and more scrutiny on the banks that are serving a lot of this market, we are finding that our scale, our ability to invest in these kind of capabilities and deliver large at a large volume programs is certainly helping us in the competitive space.
On that point about the regulators, and it seems like there's been quite a bit more scrutiny on the banking side of sort of fintech banking, how has that been perceptible to you? Are there bank partners who are more conservative, or are you guys have invested in this area, maybe are the preferred vendor in that context?
Yeah, we, so we have invested a lot in this area. T he banks, we have multiple bank partners, and we have that not just so we can split our volume, but also because the banks will do different types of businesses. N ot every one of our bank partners will do all our use cases. T here's also a matching of what our customer is trying to do with which bank is probably best suited to support that use case based on their experience. W e are seeing that additional scrutiny, but again, I would say we tend to be more advanced. We ha ve been at this longer than most companies as sort of the first modern card issuer, and we have a lot of scale, so we've been investing.
I would say we've stepped up that investment in the last two years, because as the business is getting bigger and more mature, we need to mature our offerings and our and become more systems-oriented and more automation, things of that nature. We've been successful in doing that. W e have an existing customer right now who is trying to do more things on their own, who the bank is sort of upset with them, and it happens to be a bank partner of ours. W e're stepping in to say, "Well, hey, maybe that's something we could take over for you. W e have more experience and scale, and that solves everyone's problem and additional a little bit of additional opportunity for us, so it's sort of a win-win-win.
What do you think about the international opportunity for Marqeta?
We're quite excited about it. If you look at our European business, which is the bulk of our international business l ast quarter, our volumes grew over 80%. It's a very fast-growing business. If you look at our eight of our top 11 customers are in more than one market with us. T his is our biggest customers do utilize the fact that our platform is available in over 40 markets, and it's because it's sort of a single stack, all API-based, it's quite easy to expand into new markets. E even, we highlighted in our call this quarter, Trade Republic, who's a new European customer of ours, who has a really fast-growing product that just launched in January, and they simultaneously launched in 17 markets on our platform in January.
It makes it very easy to do. As the fintech business matures, and so there are some very large companies, that ability to service them in many markets is an important part of their decision-making when they're picking a platform, and the same thing in embedded finance. Many of those companies who are interested are already multinational companies, so that ability to serve them outside of the U.S., or if they're a European company, bring them to the U.S., is definitely a big asset of ours and, something that we're leaning into quite a bit and investing in our capabilities in Europe, so we can offer even more service that's more like what we can do in the U.S. We don't have all our program management capabilities and everything in Europe at this time, but that's something we're working towards so that we have an even more robust offering.
How tough is it to roll out a non-U.S. market? Is there a lot of compliance hurdles, and there's a build. Is it-how difficult is it?
The fun thing about payments, right, is every country works a little differently. I would say it really depends, but which is always the dreaded answer, but it very much depends. C ertain places l ike we, last year expanded into Brazil, for example, which is a very tough market. It's just very different.
Mm-hmm.
E nough of our customers were saying: We really want to go to Brazil, but we don't want to work with a local, like, with local Brazilian business because that's very challenging to do. I f you could tackle those challenges, so you make it easy for us, we would really appreciate that. W e did. It took us a couple of years, and we have one customer live there, and we'll bring others. T hat is a tougher market, but it's a big market, and a lot of people want to go there. T hat's also a situation where we're there in Brazil, but we're not there to target local Brazilian business. That's a whole another step up in complexity.
We're really in that market to service our existing customers who want to go to Brazil, which is enough for us to take on for now.
Yeah. Profitability and sort of OpEx discipline, give us an update on the sort of profitability drivers and levers in the business. H ow are you thinking about where the bigger opportunities are and how things may trend over time?
Yeah, we're making good progress in this area. Obviously, the I would say there's several tailwinds that are working in our favor. One is that we're approaching the scale as a business, that we're starting to get the benefits of that you would associate with a platform business, right? What makes platform businesses attractive financial from a financial profile, is that they have very high fixed costs, low marginal costs. A s you scale, it can drive a lot of profitability, but there's a, a lot of investment required to get to that level of scale, and we're sort of starting to crest that hill, if you will. W e're starting to get some of those benefits of.
A lot of the big components of our platform are now in place, and we're still investing and improving in them, but it doesn't take the, the incremental lift like it once did. W e're starting to get some of the platform benefits, if you will, of our scale. We also are focused on efficiency, particularly within technology and our professional service, fees, where we're paying outside people. W ithin technology, we're renegotiating contracts, we're optimizing how we use these providers to bring our costs down, and we're taking more things in-house, which you can always do it cheaper yourself if you can find the right expertise. T hose are all levers that we're doing to rein those, those costs in and just get more efficient. We also are starting to utilize lower-cost locations.
W e have talked about. We've opened an office in Poland, and we think up till now, our business has been sort of entirely U.S.-built and operated. That's an expensive way to run a technology business. O n a year-to-date basis in 2024, about a quarter of our hires have been in Poland.
Mm-hmm.
That's gaining momentum, right? We just sort of started establishing ourselves, so as we hire more people, there'll be probably, hopefully, more word of mouth, and we'll be more established, and we'll get some, we'll pick up steam. T hat's a lready kind of a substantial difference in our hiring practice now than last year, which should make us more efficient. T hose are, I would say the last thing that's really important as well is that we've talked a lot about in 2021 and 2022 our sales engine wasn't firing on all cylinders, and we've changed a lot of that.
W hat that also means is the last couple of years, our growth has been mostly fueled by our existing customers getting bigger. W hich means, t hey're already big, and they tend to have better pricing from us. N ow that we have, we've improved our sales since Q4 of 2022, and our bookings are now growing really fast, a lot of those customers are starting to go live. A s those volumes ramp up, we'll have a better, a more balanced mix-
Mm-hmm
-of business, of some large customers that are growing fast, that have better pricing for us, as well as some smaller customers who are ramping up, where we'll have better economics, and that also should help drive a chieve a more profitable growth trajectory than maybe what we've seen in the last year or two.
I see. We're out of time. Great conversation. Thank you so much for being here. Appreciate it.
No, thank you, Ramsey. Appreciate it.