Get started. Thanks, everybody, for joining us here to kick off the 2025 Morgan Stanley TMT Conference. We have Marqeta here in the first slot. I'm James Faucette, Senior Fintech Analyst here at Morgan Stanley. And before I get started with Mike from Marqeta, I do have a quick disclosure to read. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. So, as I alluded to, we're here with Mike Milotich, CFO and, as of last week, interim CEO of Marqeta. Thanks a lot for being here today. Maybe just to kick off, Mike, and we've got about 35 minutes, so we'll be able to hit a lot of topics.
But I want to ask you about a bunch of different things as we go through the next half hour or so: leadership transition, take rates, global expansion, your acquisition of TransactPay, and a lot of other things. But before we do that, maybe for those that aren't as familiar with your business, can you provide a quick overview of Marqeta and what you offer to customers?
Sure, and thank you so much for having me. We are a modern payments platform offering both consumer and commercial solutions across credit, debit, prepaid, and we deliver those use cases at scale and on a global basis on a single-stack platform, so what we've really come to be known for is the flexibility of our platform and the innovation that we deliver, and it started with the explosion of the fintech business and use cases like on-demand delivery, Buy Now, Pay Later, and SMB lending, neobanking, and expense management, and now the business has started to shift into embedded finance, where you have established businesses whose core business is outside of financial services looking to embed a financial services product, either a card or some sort of banking service in the case of the kind of prospects who engage us.
Got it. Got it. So let's start. I want to talk a little bit about that because it seems like the landscape, a lot of times, a lot of those products are, there's regulatory constraints, et cetera, but that obviously has the potential to be changing. But before we dive into that, last week, as you reported, your earnings close out 2024. As I said and mentioned, Marqeta also announced that in addition to being CFO, you'll be taking on an interim CEO role as the board starts to search for a permanent candidate. Recognizing that the board's probably evaluating both internal and external candidates, how do you think about some of the qualities the board will be looking for as the business focuses on driving consistent execution?
Yeah. Simon and the board agreed that it would be beneficial to have a leadership transition at the start of 2025 as we have a renewed focus on execution, as you said, in driving our strategy of both innovation and profitable growth. I can't speak for the board exactly, but from my point of view, I think what would be a very helpful add to the company would be an experienced operator who understands the balances of a public company in terms of driving innovation and a customer focus, as well as execution of the little things that allow us to have sustainable, profitable growth. And so I think that would be the kind of candidate that we're looking to bring into Marqeta.
Any sense as to time frame and what we should expect, progress, and updates there?
I think their intention is to take their time and really assess. I think one of the advantages of me stepping into the interim role is that myself and the rest of the executive team and all of our senior leadership is still in place, and I was already involved in many aspects of the business, so the idea here is that there should be good continuity. We shouldn't miss a beat, and we can continue delivering for our customers.
I guess you're saying so they're going to say, "Mike's in charge. We're fine. Take as long as we need.
That's your words, not mine.
Hopefully, that's expressing a lot of confidence there. I like it. So let's start with the fourth quarter. And you just reported, but on this point of execution and continuity, it seems like the business is largely back on track with no really incremental onboarding or insourcing issues. And the volume growth within the financial services, BNPL, and expense management verticals all looked really robust. Is that a fair summary of the quarter, or where are you putting points of emphasis and other things that you would call out?
Yeah. I think the business is on a good trajectory. As you said, our kind of financial services are neobanking, buy now, pay later, and expense management. Our volume in those use cases are all growing in the low to mid-30s%, and so a little faster than the overall company. So they're performing really well. Our Non-Block TPV is growing twice as fast as our Block TPV. And even within neobanking, when you pull Block out, obviously Cash App being our largest piece of business, that business, the volume is growing around 100%. So there's a lot of aspects of our company where the business is really firing on all cylinders. Like a stat I would share with you, we had more than four customers in 2024 whose volume is over $2 billion, and they were growing over 100% on a base of that size.
So there are a number of areas where we have a lot of momentum. And in the first half of 2025, in particular, we're planning to add a lot of additional new services to the platform that add even more value for our customers.
And on this point of insourcing, can you just talk about that a little bit, give a little perspective? Where you have had customers insource, what has been the driver of that for them? And then how do you think about that as far as prospective other customers potentially doing that? And what do you do to try to offset that or convince them that that isn't the best path?
Sure. In November, we talked a lot about six specific instances of highly sophisticated, long-term fintech customers who wanted to take on a little bit more responsibility for aspects of the program and the business we do with them. Two of the customers wanted to take on the bank relationship. And in one of those cases, that has already been completed. The other one is going to be that transition is going to be happening in the coming months. And this is not something incredibly unusual that we see in our business, but the concentration of the activity, along with some of these other things, is what makes it a little different. One of those customers has already told us it's harder than they expected as they've been doing it.
And so we are now offering them a bunch of additional services to help them, which will minimize the financial impact on us. And in fact, that's quite common in the U.S. where we don't own the bank relationship. In about half the instances with those programs, we provide some level of program management services to those customers. And so that's not super uncommon. We had one instance where a customer wanted to take risk services in-house, and that was completed the early part of Q4. So that is done. And this is not something we see happening quite a bit going forward because you have to have a lot of sophistication. And in fact, our risk services are well adopted. About half of our customers, or a little less than half, use one of our risk services. And it tends to be the bigger customers.
So if you look at our Non-Block business, roughly two-thirds of the TPV of our Non-Block business, people use at least one of our risk services. And our real-time decisioning service, which is really about combating fraud, that revenue doubled in 2024. So we have a lot of momentum there. And then the last instance was we had three specific instances of people connecting directly to an endpoint. So think of this, they were all an on-demand delivery use case. So think of this as one of our customers connecting directly to a merchant, a grocer, or a restaurant, and therefore eliminating the need to use a card for that purchase. And two of those have been completed, and one is ongoing. There haven't been any additional instances where this has come up since last quarter.
And we don't expect this to be something that can persist because particularly as we shift into more of an embedded finance customer base, those customers are not experts in card and the regulatory environment. And if anything, they're selecting us for that expertise. And so we don't think that this is going to be a big challenge for us going forward.
Got it. So I want to even rewind even a little bit more and touch on a couple of things that came up even in the third quarter that created a lot of consternation for investors and then kind of how they resolved during the fourth quarter and then want to look forward. But a couple of the issues that were front and center at the time of your third quarter call. First, can you give us an update on how you were able or have been able to work through the backlog of deals that you had in the third quarter? Just talk a little bit about what got those going and where we're at.
Yeah. We've been really overhauling and working much more closely with our customers, the banks, and the networks to ensure that we can get programs live more quickly in the sort of heightened regulatory environment that we've been experiencing, I guess, the tail end of 2023 and certainly in the beginning of 2024. So it's been a little over a year now that that's been the case. And we've made a lot of progress in the quarter. So of all the delayed programs that we highlighted in November, all of them are live except three. And in those three instances, we are done with our work, and the bank has approved the program. So we have essentially given the keys to the customer and said, "When you're ready to take the car out of the garage, it's ready for you." And they have just elected to not launch yet.
There can be many reasons for that. They may have a promotional event coming through, or maybe there's an org change at the company. There are reasons why these delays happen. We have delivered, and now it's up to them to launch the program. Those three that remain are a very small portion of the gross profit we expect to deliver from those programs that were delayed. The monetization of those programs is underway, and we don't expect there to be a big impact. The improvements we've been making, I guess, first with customers is first we're trying to be very clear with them the implications for making changes once they get into the onboarding process.
We used to be very customer-centric a few years back and really say, "Customer, whatever you want, we can do." And we've been trying to educate them a lot more that things have changed. And the implications of doing that are a lot of delays. And so we've been spending a lot of time educating them, being very specific about it. And what we're finding is because customers are recognizing the difference in the complexity, they're taking more and more of our pre-configured solutions that have already been approved by the bank and the network, which allows things to go much faster. We are also instituting some fees as well to create a disincentive for them to make a lot of changes.
On the bank side, what we're doing is we're coordinating a lot more closely with the leadership of the banks, making sure we have regular stand-ups and clear escalation paths so that any challenges that we meet are dealt with swiftly, and that's made a big impact.
Got it. And that's actually really helpful and gives really good perspective in terms of how you're adjusting the go-to-market and interaction with the customers. If we rewind to, once again, that third quarter report, we were kind of right around the election. Obviously, we're still early days in the new presidential administration. But what is your sense as to if we should expect to see some easing of the banking regulatory environment and any impact that that would have on your delivery and ability to not only standardize and help your customers move forward more consistently, but also take advantage of any changes there might be?
Our view of the changes that are being made will be a little bit slow to trickle down. So the machine moves relatively slowly. And banks, because of the magnitude of kind of the regulatory oversight, are not known for being the most agile enterprises. So our view is that any changes that come about from the difference in the regulatory environment are probably a year away or more. So we're really focused on optimizing to the new bar that has been set over the last year. And we're very close to doing that. So we don't expect many challenges. To us, the bigger opportunity that comes from the difference in the sort of regulatory stance is innovation.
The number of ideas that four years ago got people excited, in the last year or two, a lot of people said that looks really daunting and difficult to execute in the new environment. And so if there's a new wave of innovation, we think we are a big beneficiary of that because our platform is for disruptors. You have a lot of flexibility. And so we would win a disproportionate amount of that business, we believe, if there's a new innovation boom. And so we think a year or two from now, we might start to see the benefits of that.
Got it. And then I want to go back to something that you said a moment ago where the volume of your non-Block customers is now growing faster than it is with Block. And that isn't always the case, and it hasn't been the case in a lot of periods. But how should we think about how to interpret that as it flows through your P&L, whether it be big differences in pricing or other drivers?
Yeah. I mean, I think Block, obviously, being a huge part of our business, 46% of our revenue in the fourth quarter, they have good economics with us. So I would say generally, if you just split our business into Block, non-Block, the take rates for us are better on the non-Block business. And so ultimately, the diversification of that business should help us from kind of that volume times price equation. The other thing that's important is as we start launching a lot more new business, so we've really overhauled our sales practices. We have a lot more business coming to market. And so what's also happened in our business the last year or two is those winners in fintech have become very large companies, and they're growing very fast on our platform, which is great, but they also have good economics.
We haven't had enough new business that has better pricing, at least because the volumes are a little smaller at first, ramping up. So as we have a little bit of a better balance between large customers who are growing fast as well as up-and-comers, that should help stabilize our take rates and maybe even improve them.
Got it. So let's talk about some of the key drivers that you mentioned at the outset of our conversation. Starting with embedded finance, how is your approach to embedded credit cards and other instruments different from traditional co-brand programs? And what kind of feedback have you been receiving from prospects?
We believe the co-brand is ready for a refresh, if you will, and we're looking at things quite differently. We are focused on the card as a way to drive engagement and top-of-funnel customer acquisition and less as a just pure monetization of the card itself, so we're thinking of things very differently, so on the consumer side, let me talk about consumer first. The first thing that we want to do differently is offer a truly embedded experience, so no redirecting the cardholder to a third-party app. It's embedded in your app, your website. The second thing is we want to offer very dynamic rewards and give the customer more control over those rewards to engage their users.
So if you're a business that has inventory, for example, you might be willing to offer 5x, 10x the rewards today for certain items that you are looking to offload at a lower price. And that would be a way to engage your most loyal customers. Or you may decide, we have a customer in Europe who's giving a very rich value proposition to drive more users to the platform that they're monetizing in other ways, right? Because this card is not, they're not looking at the P&L of the card just itself, but the benefit that can give everything else. We're giving our customer also a lot more control over the marketing and the positioning of it because they're really targeting their own customers. They're not going out for someone who isn't going to buy services from them in some other way.
And so those are the primary differences in the consumer side. In commercial, what we're targeting is platform businesses and marketplaces who many of them already loan to the small, medium-sized businesses who are on their platform, but they do it in a way that is more of a traditional loan. We're looking to turn those loans, put those covenants essentially into software, which gives our customer then a lot more control and visibility into how that money is being used. Those platforms have a lot of unique insights into those customers that can help with underwriting, which has traditionally been a challenge. And so those are the kinds of things that we can bring to those customers. And the last thing I would say that's important is in the co-brand space, both consumer and commercial, decline rates tend to be quite high.
And so one of the other things that we're uniquely positioned to do is offer our customers a fallback debit option that could have very similar look and feel, but maybe just a little bit less of the rewards. And they could still do that in a very profitable way with some credit-building activities to migrate customers upwards as they qualify for the original credit product that they applied for.
Got it. No, that makes a lot of sense and seems pretty compelling, so when should we expect to start hearing announcements of deals with big brands? How do we measure the progress here?
Yeah. We're making good progress. We just announced this quarter that we've signed our first consumer co-brand with an airline, a non-U.S. airline, who has a traditional co-brand in their home market. But they understand as they come to the U.S., where there's a lot more options, they're looking to do something that's a lot more engaging. And the U.S.-based customers are a growing part of their revenue stream. So they're really looking to engage those users and do something different. And they view the world the same way as us in terms of having more of an embedded experience with dynamic rewards is going to be a way to do that. And so we're excited to get that program launched later in 2025. And because what we're proposing is different, I mean, what we're trying to do is change the game a little bit.
We are engaged with a lot of big brands, and they are looking at our model because it's a little bit different and taking the time to assess it, so we do think more sales will be coming. But also, while we get a few of these customers live in the meantime, once there are a few out there in market, that makes it a little bit easier to see the difference. We think the sales will pick up. Right now, I would say the places where what we're trying to do resonates the most are people who have done a traditional co-brand because then they really understand the limitations, and oftentimes, they have experienced the frustration of working in the old model, and so they're much more open-minded to say, "I understand what you're trying to do and why you're trying to do it.
Right. So explain, and maybe the answer should be self-evident, but it's not to me. How does the addition of American Express as a network option later in 2025 specifically help the embedded finance strategy?
Yeah. We're excited to add American Express. It's the last major network. We have the other three major networks that are already on our platform, and AMEX has very strong leadership in SMB lending and in the consumer co-brand space. Those are areas of great strength for them, so we started finding ourselves in deals a lot together. Particularly the bigger ones, the brands tend to talk to the networks first, so what we found was that they could bring opportunities to us, and we can deliver more unique experiences and do things that maybe they wouldn't be able to do otherwise. We bring that innovative lens, but then also, American Express is looking to grow their debit business. That's a place where our leadership is well established, so that's an area where they can help them.
So the analogy I use is almost like the two of us found ourselves in the waiting room together more and more frequently over the past year or so and said, "Now is the time." And there's a number of deals in the pipeline that we're already working together.
Got it. So let's change direction here a little bit to TransactPay. Last week, you announced your pending acquisition of TransactPay. Can you give us some more insight into what TransactPay brings to the business and the difference really between the role of a BIN sponsor in the U.S. versus Europe?
Sure. TransactPay, the acquisition is pending regulatory approval. And there's two licenses they hold. So there's two regulators that we're waiting for approval so we can move forward. The big difference is that in the U.S., the bank owns the BINs and is the member of the network. So even in the case where we are the program manager, our customers contract directly with us. They don't actually have a contract with the bank. But the bank is a big part of the value proposition. We have to work very closely with them because of the fact that they own the BINs. And so therefore, they have a level of control and influence over the program. The way it works in Europe is quite different.
As an EMI license holder, which is what TransactPay is, you actually are the owner of the BINs, and you are the member of the network. And the customer, though, has to contract separately with that company or your processor or program manager. And so what we found was that consistently, customers and prospects, particularly the larger customers, were saying, "I really would like that to be one entity. I don't want the complexity of contracting with multiple partners. I would love a processor and program manager to also be the license holder so I can have one entity that I deal with." And we've been partnered with TransactPay on a lot of business. So we know the business well.
And so really, what this is about is with them joining Marqeta, then we have that single solution that we can offer customers, which will allow us to get sort of the higher end of the market, the bigger customers. And it'll also make it much more seamless for our non-U.S. customers to move to Europe. Our Europe business is growing really fast. In the fourth quarter, our volume there is growing well over 100%. It's over 10% of our volume now. And so our business is really doing well. And we have a very full pipeline. And so when we looked at building these licensing capabilities in-house, it was going to take several years. And these are also very specialized resources that help you manage a regulated entity.
We decided that acquiring TransactPay would allow us to really capitalize on the momentum and opportunities that we see in front of us.
That seems reasonable. But how should we think about it? So it seems like it's obviously important strategic capability. It is a growing geography for Marqeta. But how should we be thinking about when we could expect to see a return on the investment and the payback?
Yeah. So we paid EUR 45 million, and we have some performance incentives for an additional EUR 5 million. So relatively small acquisition. And their business is growing, so that'll be helpful. We expect it once it becomes into the fold, which we've assumed is starting in Q3. It'll add in the quarters that follow about two points of revenue and gross profit growth, so about a one-point impact to the full year. And they are EBITDA neutral, so we don't expect any dilution on the business. And the real benefit, though, will come from sales. So what I would say is with this inclusion, we believe we will close a lot more business in 2025 that will start to benefit the P&L in 2026. So that's when you really start to see the financial benefits probably in the second half of 2026 and into 2027.
Got it. Got it. We've got about eight minutes left. If anybody has any questions, raise your hand, and we'll get you a mic. I've got about 40 minutes of questions left, so I want to make sure we get people in the audience a chance.
Yeah. No problem.
Do you want to just ask it, and then I'll repeat it? Yeah. Yeah.
It's on.
Block's been talking about the new Afterpay on Cash Card. Do you guys have any words that can be helpful?
Sure. So just the question was, with Block's new Afterpay on card, what's Marqeta's role there?
So we are the partner not only for Cash App, but also Afterpay. So we're very involved in the planning and the execution of that capability for Cash App.
Follow up, anything else you wanted to get in there?
Yeah. Any expectations about that launch last week?
Yeah. Expectations for that product, timing, etc.
Yeah. I mean, I can't speak about their business. I mean, I think what they've said is they expect the business to accelerate through the year, and we're going to do everything we can to help them be successful.
I'll just take that. Good. Anything else? So I want to ask just on maybe as it relates to the forecast, etc. You mentioned last week that embedded in your guidance for 2025 is the impact of two renewals. Can you talk about how you approach renewals and how we should think about the impact on take rates from future renewals?
We try to make our renewals win-wins. And also, so rewarding our customers for growing on our platform, but also set up a lot of room in the contract so that the next renewal is sort of a non-event. So we try to include also aspirational tiers in the volumes that sort of go beyond what we think we could expect in that contract term to minimize the impacts of future renewals. So we believe that as customers grow, they should benefit from some scale, and they will get lower pricing. I think what we dealt with now about two years ago, so from the middle of 2022 to the end of 2023, we renewed about 80% of our TPV. And many of those customers, their volume had boomed coming out of the pandemic.
And so we had some pretty significant adjustments to pricing that was warranted given the incredible achievements that those customers had made. And then in 2024, we had a little bit of a reprieve from that. In 2025, we have our last two customers, two of our top 10 customers, where this is the last of them where we think there is a little bit more of a price reset that needs to happen given the success and scale that they've achieved. And once those are done, then from here on out, it really just becomes business as usual. There will always be renewals, and people will always get a little bit of a price, generally speaking. But that's a part of doing business, and it won't be as impactful as these two renewals will be or what we experienced in 2023.
Got it. So talking about profitability, your EBITDA margins came in significantly better than we had expected this quarter. What are some of the areas where you've been able to bring down costs?
Yeah. Our EBITDA in 2024 ended up being $29 million. So we did a great job driving that. And we expected to be well over $50 million in 2025. So we're on an accelerated trajectory from a profitability perspective. And a lot of it has to do with we've had a lot of efficiency initiatives going on in the last two years, and we're really executing well. One of the big areas where we've had a lot of success is we use a lot of technology providers in delivering our platform, right? We have cloud providers, data providers, etc., that we utilize. And a few years ago, we just really weren't as focused on managing those efficiently and optimizing them. So we've done a lot better at really looking at how do we use those services and making sure we're using it in an optimal way.
We've restructured in a lot of cases the contracts that we have with those providers. Also, a couple of years ago, we were 100% U.S. operation to build, manage everything about our platform and program management, which was not as efficient. Since then, we've now hired a lot of very talented people in Poland and Canada. So that is helping us drive just as much value, but it's a little more efficient for us. And also, the last thing we're doing is like a lot of sort of younger hypergrowth companies, you tend to throw bodies at problems as they arise. And we've started to be a lot more disciplined around making sure we're doing things in optimal ways with automation and overhauling processes so that there's just a lot less rework. And so our talented people can just be a lot more efficient and effective.
Absolutely. Absolutely. And then as part of your drive for profitability, you've talked about the goal of gross profit growth or of gross profit growing over 10 percentage points faster than OpEx. When do you think that's achievable?
We think we're very close. As a platform business, it scales really nicely. And so we feel we can grow our volume and therefore our gross profit at a much faster clip than our expenses as we get the benefit of scale. And in doing so, we can still invest in innovation in the platform because we have a large investment capacity now. We've built a large team, so we can make a lot of improvements without necessarily growing the expenses quite a bit. So even this year, what we've said is our gross profit in 2025, we expect it to grow between 14% and 16%. And our expenses to grow sort of mid to high single digits. So we're almost there to that 10-point gap. And that's despite some setbacks we've had in growing the top line growth. So we think it's very achievable and coming soon.
Lastly, just we've got a question here. Is there a mic?
Hi. First off, Mike.
Oh, thank you.
With this rise of alternative networks.
I'll just repeat the question. With the rise of new networks like Stripe, an example for the course of time, where does Marqeta see the puck going? And how are you trying to outskate everyone to get in there?
Sure. I think like a lot of those companies, we view ourselves more and more as a platform where there's value we can be offering to multiple customers who may be trying to do business with one another. Even last quarter, we announced Marqeta Flex, which was to help optimize how Buy Now, Pay Later can be used wallets. And we think we're uniquely positioned given our partnerships with Buy Now, Pay Later companies and what some people might want to do with a co-brand card or a neobank offering. And we can be that glue as a platform play. And so we have very similar aspirations, but on the issuing specific to issuing where we can connect multiple parties on our platform to add even more value.
That's awesome. Well, Mike, thank you very much for joining us. Thanks for helping kick off the 2025 Morgan Stanley TMT Conference. And all the best luck, especially as you're going to, I'm sure, you're going to be heavily involved in trying to find somebody to help remove that interim part of your title. So thank you so much.
Thank you for having me.
Yeah. Yeah.
Yep.
That's perfect.
Yeah. Thank you.