Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Marchetta Second Quarter 2021 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, we will open the lines for your questions.
As a reminder, this conference call is being recorded. I'd now like to turn the conference over to Stacy Feinerman, Vice President of Investor Relations to begin. Thanks, operator. Before we begin, I would like to remind everyone that today's call may contain forward looking statements. These forward looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our Investor Relations website, including our prospectus dated June 8, 2021, and our subsequent periodic filings with the SEC, such as our quarterly report on Form 10Q for the quarter ended June 30, 2021.
Actual results may differ materially from any forward looking statements we make today. These forward looking statements speak only as of the time of this call and the company does not assume any obligation or intent to update them except as required by law. In addition, today's call may include non GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP Financial Measures. Reconciliations to the most Directly comparable GAAP measures can be found in today's earnings press release, which is available on our Investor Relations website.
Hosting today's call are Jason Gardiner, Marqeta's Founder and CEO and Sherpa Thay, Marqeta's Chief Financial Officer. With that, I'd like to turn the call over to Jason to begin.
Thanks, Stacey. Thank you, everyone, for joining us for Marqeta's first Earnings call as a public company. It's great to be connecting with you all. We had a very successful IPO. We raised a lot of capital and we're off to a great start.
Tripp and I are excited to share Marqeta's 2nd quarter results as well as an overview of our business. I want to cover a couple of financial highlights about which Tripp will provide additional detail. Next, I will talk about 3 key themes for the quarter. And lastly, for those on the call who are less familiar with us, I'll provide some focus on Marqeta. With that, let's begin.
Our second quarter results demonstrate our solid product market fit and execution in this rapidly evolving digital payments landscape. Dollars 27,000,000,000 in total processing volume or TPB, A 76% increase compared to the same quarter of 2020, dollars 122,000,000 in net revenue, A 76% increase compared to the same quarter of 2020. There are 3 key themes that I want to highlight from the Q2. 1st, We continue to land winners. Google chose Marqeta to power the launch of a digital card for Google Pay balance users, allowing them to instantly use their balance through a virtual card tokenized in Google Pay.
2nd, we continue to expand and grow rapidly with our We expanded our relationship with Square. Square announced Square banking services during the quarter and we are proud to power the Square checking product. And third, we continue to build long term relationships with our customers. During the quarter, we extended our agreement with Affirm Until 2024, this is a confirmation of our enduring value of our platform and our robust partnership. Again, Trip will provide more details on our Q2 performance in a few minutes.
Still, this is our first earnings call. I'd like to spend some time providing you a brief overview of Marqeta, the industry tailwinds driving our growth and a few of our strategic initiatives. Marchetta created modern card issuing, which is at the heart of today's digital economy. When you think of the cards in your wallet, These do very little and have seen little innovation in decades. Now imagine a car that could take any form factor you wanted to, solve significant payment problems at scale and disrupt entire industries from authorizing transactions Based on dozens of dynamic criteria to allow you to pay in installments to creating a brand new consumer or commercial experience.
These cards can be physical, virtual or tokenized into mobile wallets. They can be credit, debit or prepaid Built by developers in days using cutting edge tools instead of months. This is modern card issuing. When you order food using DoorDash or groceries using Instacart, modern card issuing works in the background as money moves from the app The delivery driver's card. When you buy a big screen TV and pay for it in installments using Affirm or Klarna, Modern card issuing helps move money to the payment card used to pay the merchant seamlessly.
Some of the most disruptive companies of the last decade such as Square, Instacart, Uber and Klarna use Marchetta technology at the heart of their product. We're the 1st modern card issuing We're built from the ground up by developers for developers in the cloud with open APIs and best in class developer tools. We believe we are the 1st to market with multiple issuing and processing innovation, including the 1st open API for building bespoke payment card solution, Just in time or JIT funding and tokenization as a service. These innovations put the control of designing standing payment experiences in the hands of customers to enable them to launch unique payment card products in a fraction of the time they could on legacy platforms. We believe that Marchetta is now the de facto modern card issuing platform and that our continuous innovation further cements and Our market leading position.
We are deeply integrated with our customers in 3 ways technical, experience and partnership. Marqeta's technology underpins our customers' core business or supports their core business. Our people are their trusted partners As our solutions drive their key processes, our deep experience serving the most innovative commerce disruptors, technology giants and financial institutions brings valuable issuing expertise to build and scale innovative programs. Additionally, we partner with our customers for long term success. Our usage based business model provides a win win for our customers and Marqeta.
As their businesses thrive on our platform, our net revenue grows. Moreover, our customers are incentivized to bring new volume and launch New card programs on our platform as they benefit from volume based discount via tiered pricing. As a result, We have long term contracts that promote and maintain alignment. Customer success is at the core of everything we do and connect the customer As a core company value, we build technologies for people who serve people. The strength and durability of our customer relationships are evidenced by our 2nd quarter year over year net revenue growth of 76%.
We managed to support massive innovation for these customers at a considerable scale. Our platform operates at 99.995 Our volume through the Marqeta platform has increased 30x in the last 4 years. We operate in 36 countries and growing. We believe the opportunity within payments and modern card issuing is tremendous. There's a $74,000,000,000,000 global buddy movement market, Of which $30,000,000,000,000 in international card issuing.
The Marqeta platform processed $60,000,000,000 last year, A small fraction of the total card issuing opportunity. With the accelerating shift to digital payments, the market continues to expand. We believe Marchetta has the modern technology, deep experience and momentum to capture a growing share of this market. We believe this TAM is a vast ocean of opportunity ahead of us as everything moves to digital electronic Transaction, changing the entire landscape of how the world is moving money in the future. Marqeta is well positioned to capture this large opportunity in 3 ways.
1st, the shift to digital payments is accelerating. More and more transactions are moving online And when they are in person, people worldwide are increasingly choosing not to pay with cash. They are choosing to pay with a card or with contactless payments. This has only accelerated during the pandemic. 2nd, payments are not only becoming more digital, they are also integrated more frequently into consumer and business applications.
Think about the last time you used online food delivery, a messaging app or a digital marketplace. Payments is deeply embedded as Part of the experience, software companies continually partner with payments companies to provide simple, scalable And configurable payment services to meet their end users' needs. 3rd, consumers' trust in new payment technology is growing. Consumers are increasingly more confident about the use of online shopping and digital payments for safety and convenience. While the pandemic may have encouraged the use of services such as Instacart, our contactless payments as a matter of safety, Once consumers experience these conveniences, we believe they are unlikely to change back.
Because of these three tailwinds, As well as our 11 plus years of experience, we are confident in our ability to further expand Our leadership position in modern card issuing. The work we have achieved to date and our goal to be a generational business going forward It's dependent on creating an atmosphere where Marchetta can do the best work of their lives. To do this, We have recently added 2 new leaders to the executive team and Darren Mowery, our new Chief Revenue Officer and Randy Kern, our new Chief Technology Officer. Both Darren and Randy have tremendous hands on experience in scaling large Enterprise Businesses. Darren comes to Marquesa from leading AWS through EMEA, a business unparalleled for the innovations that has powered at scale And the same laser focus on customer success as Marqeta.
Randy has spent almost 3 decades in engineering, Nearly all of it at Microsoft and Salesforce, building the technical infrastructure to support substantial high availability businesses. We are excited to see their impact on the company and I have a strong belief that these are the right people to have on our executive team as we focus on capturing the vast market opportunity in front of us. This quarter marks the first step in our life as a public company. We believe we are barely scratching the surface when it comes to modern money movement. We are excited about the opportunity in front of us and we look forward to our successful track record.
With that, I will turn it over to Tripp Fay, Marchetta's Chief Financial Officer to discuss our second quarter financial results. Thank you.
Thanks, Jason. Good afternoon, everyone. I'm excited to talk to you today about our strong Q2 financial results and provide guidance for Q3. Given this is our first earnings call as a public company, I will talk briefly about our business model and some of the key points of our story. We're a usage based business, a transaction based business and interchange based business.
We believe that total processing volume or TPV, which increased 76% compared to Q2 of 2020 is a key indicator of market adoption of our platform, Growth of our business, our ability to scale with our customers and our customers' continued usage of the platform. TPV drives a majority of our revenue as we earn interchange fees from card transactions. We share those interchange fees with our customers so that our customers' interests are aligned with those of Marqeta's. Our customers are incentivized to bring new volume and launch new card programs on our platform as they benefit from volume based discounts via tiered pricing. This results in long term contracts that promote and maintain Our alignment.
The amount we generate after our revenue share with our customers is recorded as our net revenue line item on our income statement. We also generate revenue from other sources, processing fees, monthly platform access fees, ATM fees, card fulfillment and tokenization. Cost of revenue consists of card network fees, issuing bank fees, Card fulfillment costs and a contra line item of network incentives. When looking at costs, it's important to know that through our strategic partnerships with the card networks, we receive incentives that are earned based on achieving certain volume milestones over the year. Again, these network incentives are recorded as contra cost of revenue and therefore reduce our cost of revenue.
Incentives can be earned in the quarter or on an annual basis. For certain incentive arrangements with an annual measurement period, The 1 year period may not align with our fiscal year. This can result in variation in our cost of revenue between quarters. Finally, netting our cost of network fees, issuing bank fees, card fulfillment costs and our contra cost of revenue, network incentives Gets us to Marqeta's gross profit line item. With that, I wanted to turn to our results for the 3 month period ending June 30, 2021 and then discuss some of our non GAAP results.
Total net revenue increased by 76% to $122,000,000 in Q2 of 2021 from $69,000,000 in Q2 of 2020. This was a strong result that exceeded our expectations. The increase was primarily driven by a 76% growth in TPV. Our revenue share payments increased by 78% from the Q2 of 2020. As a reminder, Revenue share payments are incentives to customers to increase processing volume on our platform.
As a result, net interchange fees increased 68% volume along with monthly fees and tokenization as a service. Let me delve into TPV for the quarter, which was 27,000,000,000 An increase of 76% compared to the Q2 of 2020. This increase reflects outperformance from both our digital banking and buy now pay later or BNPL customers mitigated by tougher comparables from our on demand delivery customers. 1st, in our digital banking vertical, it's important to note that in addition To the strong adoption of these products, we also benefited from the tax season filing deadline shifting further into Q2 from April 15 to May 17. We believe the effect of that filing delay resulted in more spending shifting into the Q2 as people receive their refunds later.
2nd, our BNPL customers experienced 3 50% growth in net revenue compared to the same quarter of 2020, demonstrating both the growth enabled via product market on our platform and the adoption of this method of payment worldwide. 3rd, the quarter also represented the first time we encountered Tougher comparable in on demand delivery as a result of the pandemic. Although growth for this vertical was down compared to previous quarters, Absolute volume levels remained high. This is a testament to the enduring nature of our changing consumer behaviors, to $47,000,000 compared to $28,000,000 from the Q2 of 2020. Gross margin decreased slightly from 40% in the Q2 of 2020 to 38% in the Q2 of 2021, primarily due to card network fee growth, which was driven by a 76% increase in TPV and a 77% increase in the number of transactions, offset by lower growth in our issuing bank fees.
I wanted to spend a little time on gross margin. Firstly, we remain committed to our long term gross margin target of between 40% 45%. We had a higher gross margin in Q1 2021 due to an annual recurring incentive payment from the networks. This lowered our cost of revenue and increased our gross margin by a few points. In Q2, we had higher network fee growth.
Network fees can vary significantly by merchant, MCC code, transaction type, card not present and the like. Why we will not be providing specific gross margin guidance going forward because we're a usage based business and our margins can vary quarter to quarter, We do not expect 38% gross margin as a run rate going forward and are very comfortable with our long term target for gross margin between 40% 45 Overall, our GAAP net loss was $69,000,000 driven by our continued investment in people and technology and included $56,000,000 in share based compensation, of which $23,000,000 was reported for restricted stock units upon the consummation of our IPO. In addition, we recorded stock based compensation of $5,800,000 for secondary stock sales, which should be considered non recurring. On a non GAAP basis, adjusted EBITDA for the quarter was negative $10,600,000 compared to a loss of $3,000,000 in the comparable quarter of 2020. The growth was largely driven by compensation related costs to invest back into the business to support future growth.
As a note, we do view adjusted EBITDA as a useful measure for our operating profitability. We ended the quarter with over $1,700,000,000 in available liquidity and cash and marketable securities. Approximately $1,300,000,000 of that liquidity was a result of the capital we raised in our initial public offering. As Jason mentioned in his opening remarks, we're just scratching the surface of a large addressable market. Therefore, we believe that the best way to capitalize on that opportunity is to invest in our products, our technology and our people.
I'll now move on to guidance. As we mentioned in our press release, we're providing the following guidance for the Q3 of 2021 based on our current assumptions. Net revenue for the quarter is expected to be in the range of $114,000,000 to $119,000,000 At the midpoint, this would represent growth of 38% on a year over year basis. Our range for adjusted EBITDA It's negative $16,000,000 to negative $13,000,000 Q2 was a strong quarter that exceeded our expectations. Q3 guidance reflects ongoing strength from our digital banking and BNPL verticals.
We believe Q2 net revenue included a one time benefit from the delayed tax season, as I mentioned earlier. If we normalize Q2 for this one time benefit, our guidance for Q3 3 2021 net revenue would have represented a sequential increase quarter over quarter. The midpoint for our Q3 net revenue guidance It's 38% year over year growth as we will be 1 year removed from the Q3 stimulus of 2020. We remain very pleased with the growth we're seeing from both our largest customers and from our emerging customers, both in the near term and our forecast for the long run. In addition, our adjusted EBITDA guidance takes into account increased headcount investment as we look to add additional talent, primarily in our product and technology teams.
While we're not giving guidance for Q4, we did want to provide additional color. Historically, we have seen a Positive bump in Q4 driven by increased consumer spending, which has traditionally manifested itself in our digital banking and buy now pay later verticals, Given the Q4 holiday season, in past years, we've also seen an increase in our expense management vertical due to travel. However, we remain thoughtful and prudent as we're all grappling with the changing dynamics of the COVID pandemic. In summary, we had a very strong Q2 overall and are very optimistic about the quarters ahead, our customers and the opportunity ahead of us in modern card issuing. I'd now like to turn the call over to the operator to open up the line for Q and A.
Operator?
Thank you. We will now be conducting a question and answer session. Your first question comes from Tien Tsin Huang with JPMorgan.
Thanks so much. Thanks. Good afternoon and congrats on the first public call here and the great growth. I wanted To ask, overall results were comfortably ahead of our estimates. I know there are a lot of puts and takes that you just went through, but I want to ask simply On the revenue side, that was up handily sequentially, while gross profit was slightly down sequentially.
What would explain The difference there, if
you were to summarize it.
Thanks, Tien Tsin for the question and good to hear from you. I'd say On the top line, outperformance was driven by 3 factors. Number 1 was Continued strength in our digital banking vertical. The second is the BNPL, which saw 3 50% year over year growth. And the third was expense management, where we saw 100% growth year over year.
Does that answer your first question? Happy to go on to the gross margin.
Yes. No, for sure. Then on the gross profit side, yes.
From a gross profit perspective, I'll first start off by saying that we believe our performance in Q3 will be in line with our target of 40% to 45%. We did have a higher gross margin in Q1, due to an annual recurring incentive payment from the networks, which increased our gross margin By merchant, by MCC code, transaction type, card not present and the like. I will point out that we did have higher ATM volume this quarter. But I think the most important message here is, we believe that our performance in Q3 will be in line with our long term target of 40% to 45%.
Got it. So you move away from some of the nuances you just called out. No, it's very clear. Maybe if you don't mind one more quick follow-up maybe for Jason Anshur and I heard that amazing stat on buy now, pay later net revenue of 3.50%. I had to read that a couple of times to make sure I saw that right.
So for you, Jason, you've seen a lot of use cases take off, I'm sure, right? And I'd love to hear your thoughts on Binopulator in general and And of course, what Square Afterpay combination means for Marchetta, if you could opine on that? Thanks.
Yes. So as you pointed to, we've seen this popularity on our platform as far as buy now pay later. Revenue for the vertical has increased 3 50 percent from the comparable quarter of 2020. So if we point to the work that Square and Afterpay were now due, both founder led companies, both build beautiful customer experiences. It just demonstrates that Buy now, pay later is an immensely popular method of payment that we believe is here to stay.
So and we as a reminder, I believe you know this, Klarna, Affirm and Sezzle are also customers of Marchetta. And I think this deal just simply illustrates every part of the Financial Services value chain can be disrupted, which plays into our strengths as a modern card issuing leader. We saw really buy now pay later get started in Europe with Klarna. We saw obviously that come to the United States with Affirm. We've seen Afterpay, who we support in the U.
S. We support in Australia and New Zealand continue to grow. So both of these Marchetta customers, both Afterpay and Square coming together is Pretty significant. And we believe we'll see continued growth in the buy now, pay later vertical.
Good stuff. Thank you.
Next question, Josh Beck with KeyBanc. Please go ahead.
Thank you so much for taking the question and my congratulations as well on life as a new public company. I wanted to go to the Google announcement. Obviously, that's a very high profile win. They have really Incredible internal resources. I'm sure there were lots of other companies that were bidding for this Business.
So maybe just help us understand what you felt like really helped differentiate you and really create a win win
Yes. Thanks, Josh. I would start their belief In modern card issuing, to use the best tools in the market, the partnership, the technology and the experience is paramount. And you're right, Google Talks to everybody across the world that issues and processes cards, but the belief in Marchetta and our technology and where we're headed was paramount for them. Our platform is simply designed to be able to help the world's most innovative companies execute game changing products at scale And Google chose Marchetta for that.
The product that we built with them is we're powering a new virtual Google Pay balance card, it allows users to easily spend their Google Pay balance through a virtual card tokenized into the mobile wallet, the Google Pay wallet, And you use that accepting merchants, which we today, there's a lot of merchants, especially here within the U. S. That accept that card. And before, Google Pay balance users were very, very limited into how they can use their funds. So this really opens up an entire ecosystem.
I would say that the tailwinds and why we both believe in the product is contactless payments and mobile wallet usage has really surged towards So, during the COVID-nineteen shutdown and consumers have significantly moved away from cash In physical cards to T Mobile Wallet, it's like my mom uses Google Pay all the time now, which is a great example. She's a bellwether for accepting technology. Marketo was one of the first companies to enable companies to instantly provision tokenized cards into mobile wallet. And we've already done this at scale With companies like JPMorgan Square and Square and others. So very honored to be working with Google and launching this product to market.
Well, congratulations. And a follow-up maybe for Trip, you obviously have given us some very helpful context on The verticals that were particularly strong within the quarter, you had some comments also about on demand delivery. So maybe just at a high level As you build out the forecast for the second half of the year in Q3, just anything that we should be Aware of with respect to the different verticals and some of the crosscurrents there.
Absolutely. Our Q3 guidance reflects Ongoing strength from digital banking and BNPL verticals. We have a midpoint of our net revenue guidance of 38% year over year. We also mentioned that while we're not giving guidance for Q4, We did want to provide additional color. Historically, we've seen a positive bump in Q4, driven by increased consumer spending, which has traditionally manifest Itself in the digital banking and BNPL verticals given the holiday season.
You asked very specifically about on demand delivery and We have seen some softness in on demand delivery, but I also want to highlight that we see continued elevated levels on the platform. And so that in our mind is a testament to the services that they are providing via our platform.
Congrats again. Thanks team. Thank you.
Next question, Ramsey El Assal with Barclays. Please go ahead.
Hi. Thanks so much for taking my question this evening. There's a lot of moving parts in the Q3 guide, lapping stimulus, timing of tax season, etcetera. Can you just review for us again sort of those moving parts and also comment on the visibility you feel you have now to Q3, I mean, maybe in compared to sort of in a more normalized year, do you feel like you have that same type of revenue visibility now that you had historically in the
Thanks, Ramsey. That's a multipart question. So let me attack it from various We believe we benefited from the tax season filing deadline shifting further into Q2 From April 15 to May 17, we believe the effect of that filing delay resulted in more spend Shifting into the Q2 and when we normalize Q2 without this benefit, we believe net revenue growth would have been in the low 60s to mid 60s in Q2. Comparing this to our midpoint guide of 116.5 On a pro form a basis, we'd be increasing sequentially quarter over quarter. You talked a little bit about visibility to Q3.
I think everyone's kind of dealing with the lapping of stimulus payments from Q3 of 2020. We feel very good about our midpoint guide of 38% year over year growth. Again, that's supported by our digital banking and strength in our BNPL vertical.
Okay. One quick follow-up. There's been a lot of chatter recently about the durability of the Small bank carve out in the Durbin Amendment and the ability of fintechs like Marchetta to kind of issue through these small banks and earn the unregulated interchange. Do you see any changes on the horizon? I guess more importantly, if there were any changes, how would you navigate those changes?
Maybe I'll clarify Yes, I can jump in here, Troy. Yes. So Josh, we don't see anything changing in regards to the Zurbin Amendment in the near term. We keep our eye on it. It's been in place and it was meant to protect small community banks and was meant to protect Consumers, a change like that would be pretty significant to the industry.
But again, we keep an eye on this stuff. We keep an eye on a number of regulations like rate II and other things going on in the industry. That being said, We have a healthy and growing business outside of the U. S, which is not driven off of interchange purely. We have another business model We've been successful in building.
This is both in Europe, this is in Australia, this is in New Zealand. If things begin to change around Durbin several years out, we'll be very, very thoughtful in regards to how we change our business
model, so we can maintain
our growth. Super So we can maintain our growth.
Super helpful comments. Thank you.
Next question, Darrin Peller with Wolfe Research.
Hey, guys. Congrats on Q1 out of the gate being strong on the revenue side. When we look at the growth
Great. Hey, when we look at the growth rate of your story and we looked in your 10 Q and I
think it showed Square was up somewhere
in the low 70s. Your revenue growth obviously overall
is outperforming that large customer showing I think what you've talked about what happened is the diversification of the business expanding from other kinds of offerings. Clearly, buy now pay later is one of those neobanks, digital banks in general. So can you just touch for a minute again on really the differentiation on the buy now pay later Maybe just moving beyond some of what you've had as your core contributors to revenues, The tech differentiation, since I know Marchetta has really been known well for things like that on demand delivery, buy now, it'll be later. If you could just go through how you're winning so well there?
I mean, if you look at the companies that are on platform, Affirm, Klarna, Afterpay, Sezzle, they really drive experience and they don't build one product, they build multiple products on our platform. That's number 1. 2nd is through multiple geographies. So we know how to operate Inside of not only different regulatory environments, but different technology environments, different operational environments, This is very, very complex and experience is key. We have over 11 years of experience doing this.
And just like we had built out in the beginning, we talked about this in When we think about commerce disruptors, buy now pay later or BNPL is right there, and our goal has always been to dominate a vertical, go in, land and expand winners, get the experience and know how to operate these businesses at scale. So we do see tremendous growth, the 3 50 percent growth year over year is tremendous and we expect to See more growth within that space, but they simply choose Marchetta. We do smart deals. Our customers do smart deals. We focus on Connecting the customer, leading innovation and delivering results associated with our platform.
Got it. All right. So it seems like that can persist. When we and then just an add on question would be around the Expansion from what you've been doing and you touched on you pretty much started into credit card. I think it was really last couple of quarters.
And there's also been more progress or I guess incremental partnerships with banks underway. Can you just touch on the opportunity there, There are mainly the credit card side and where the progress has been. Thanks for being honest.
Yes. And we talked about this publicly. We've announced our relationship with Jeff, with Deserve, we have a customer already using the platform and test and obviously we look to grow that pretty significantly. 50% of consumers in the U. S.
Use credit. We know credit is going to be growing outside the U. S, both in Europe and one of the largest Credit card markets in the world is going to be Asia in the coming years. We know consumers want more credit. So we thought Very differently how we wanted to go and build.
We wanted a better experience for consumers and businesses. We wanted them to be able to create Just like the promise of APIs and when we started our business is to create cards that either can disrupt entire industries Or solve large problems at scale. We couldn't do that with cards that were just looked like everyone else's cards Delivered by banks. So we thought the same way with credit. What does the credit card of the future look like?
And how can they go and build that? So We have a fairly large team here at Marchetta focused on that product. We believe that product In the coming quarters, we'll expand. We'll have more to announce there, but certainly excited about credit. And then there's a number of other areas in regards to not only issuing and processing, but card products and the associated Processing that goes around a lot of the tools and things certainly around program management.
So Lots to talk about in the future, lots of run written chapters and certainly more to come.
Great. And we're looking forward. Thanks, Jason. Thanks, Troy.
Welcome. Thank you.
Next question, Ashwin Shirvaikar with Citi.
Hi, guys. Congratulations. Good start in your life as a public company. Thank you. Yes.
I wanted to ask about Square. Any new work that you do for Square, would that necessarily, I guess, fall into one of the existing contracts? And if so, would it Benefit from Square's perspective or perspective already benefit from the higher thresholds already hit. And obviously, I understand client confidentiality. So the second part of the question, a generic answer is fine, if you can give that just That's actually trying to understand that.
Sure. So we have a number of product With Square, we've talked about Square as absolutely the shining example of modern card issuing. They truly Understand within their DNA in regards to how to build beautiful outcomes for the customers, starting with the Cash Card And second is with Square Card, which is on the merchant side. So we see, we talked about and announced That the Square Banking Services represents sort of a much more fulsome authoring, higher your savings, lending and Square Checking, And we're powering multiple parts. We're powering Square Checking.
We've talked about the Square debit card account and routing numbers and FDIC insurance. Again, companies use our APIs to solve financial problems at scale. And obviously, we welcome that. We welcome our customers building more products on our platform. It creates a nice horizontal approach, which is Really a part of how we connect the customer and how we go to market, and we want them to continue growing.
So yes, we will hit volume tiers Based on their success, certainly Square's success is our success and we want them to continue doing that.
Got it. Understood. And then as I sorry to deliver this, but the Sort of the 3Q, 4Q commentary was not super clear with regards to The fall off, so to speak, as you're thinking of the next couple of quarters, Is it primarily caution? I mean, I get the tax piece. Is there anything beyond the tax piece plus caution in And are you actually seeing as you look at current results, the impact of Delta variant, things like that?
Yes. I mean, everything we have shared, we I'll kick it off, Chip, and then I'll just hand it over to you. I mean, everything we've talked about, we've factored into our guidance. We believe we're only scratching the surface here. We have $60,000,000,000 Processed volume and there's $6,000,000,000,000 in the U.
S. Alone in volume on cards. So I will start with that and I will turn it over to Tripp.
Ashwin, our Q3 guidance reflects Again, strength from digital banking and BNPL verticals. We have expressed that we've seen some softness in our ODD, But they continue to be at very elevated levels on our platform. 38% year over year growth of net revenue It is the midpoint of our guidance, and we are lapping Q3 stimulus from 2020. And so we continue to be thoughtful. We continue to be prudent as a new public company.
Understood. Got it. Thank you.
Next question, Rob Napoli with William Blair.
Thank you. Good afternoon. And let me add my congratulations to a successful IPO in your Q1 call and strong numbers Out of the gate. Thank you. Jason, just you have I mean, I think as you pointed out, I mean, a massive opportunity Internationally, not only in the U.
S, but also internationally, which is a right now or last year was a small part of your business. I think maybe 2% of the business. You have a number of international customers. And So just some thoughts around the growth of international, the timing for growth, what does it take To make that a much greater part of your business, I know you just hired a senior executive from AWS In APAC or EMEA, maybe that's part of the strategy.
Yes. I mean part of the strategy and hiring Darren is his experience at AWS For over 10 years and building that into a formidable business throughout EMEA, especially obviously international is incredibly important. So I would start with this. Monarch card issuing is certainly a global phenomenon. In towns, cities, countries, continents, the ability For customers to accept payment cards, whether online or offline, is continuing to grow around the world and we see Absolutely no change in that.
In fact, we're going to see it increase, because we're seeing obviously massive reductions in cash. This is international specifically a Huge opportunity for Marchetta in the future. Our business has been global for a long time. We've been transacting in basically every country that You can transact in the world. The secular trends we've been discussing apply every major market, not just in U.
S. And moving from cash to card, as I mentioned, and then from card to mobile is really a worldwide phenomenon. So, we'll enter a new market when it makes sense. It's a fit with our long term strategy, support of existing customers and their expansion plans, compelling conditions to build Strong local business, higher strong talent to achieve these outcomes. And then our international plans are partially driven by our customers, DoorDash in Australia, Instacart in Canada, Klarna in Australia, Afterpay in the U.
S, Canada and Europe and Uber in the EU. So, we had talked about in the roadshow, only 2% Our revenue actually comes from outside the U. S, but there's a $30,000,000,000,000 Global card issuing opportunity. And we also believe that a lot of the current volume Moving off legacy platforms to more modern platforms. So we see growth outside the in the international market to be tremendous.
So Part of your question was, so what does it take? Every country is different. Every country has different networks, Different rules, both on how money has moved, but also how you manage, consumers' data, their PII, their Personally identifiable information. So as we go enter our country, we're very thoughtful, we're very prudent on how we do that. And obviously, we look to build both a great business there and being able to support our customers as they move around the world.
Thank you. I appreciate it. And then just in the bank space itself, JP Morgan, Goldman, Marcus, maybe, I think and obviously the NeoBanks, you're pretty good with Square. I mean, there's a lot of other NeoBanks Out there, some of which you have, but a lot of which you don't currently or what is the and there's a lot of new startups in that So just some thoughts on the large bank space and then maybe the opportunities in the neobanks outside of Square. And is there anything in your contract Which Square that prohibits you from working with certain other neobanks or certain other banks?
No, There's nothing in our contracts that
preclude us from growing our business.
Yes, so the space, the digital banking space It's a big space for Marchetta. It's something that we're very hyper focused on. Digital Banking or NeoBanking or whatever label you want to apply to it is massively disruptive. And we've seen in both Jamie Dimon talk about the disruption coming from neobanks or digital banks. We also hear And see growth from companies like Square in the Cash App and the card that we have built and the other products that they built on top of our platform.
So we have been very purposeful as a business. We started in commerce disruptors. We moved to digital banks. We moved to large tech giants. And as you mentioned, JPMorgan Chase and Markets by Goldman Sachs It's how we're breaking into LFIs or large financial institutions, we like to refer to them internally.
Those large financial institutions is where a majority of the volume today exists And they are looking to modernize. They're looking to move from on prem to the cloud. So on premise managing hardware into the cloud. And that is a core to our business and it's how we think about the future. We know everything is moving to the cloud.
We also know that the large financial institutions want to build on new platforms. It allows them to not only reduce total cost of ownership, But allows them to build and iterate much faster and bring new products to market than much faster before. So I'm breaking it down into 4 different areas, which is commerce disruptors, digital banks, large tech giants, which we also believe a lot of large tech giants want to become financial institutions in one way, shape or form. And then the large financial institutions or existing financial institutions. And we have very clear, Precise strategies on how to not only grow our existing business, but with more business within those specific landscapes.
Thank you. Very helpful.
Your next question comes from Craig Maurer with Autonomous. Please go ahead.
Yes. Hi. Thanks for taking my question. I'll keep it brief. It's just a quick one.
The acquisition of Afterpay by Square, does this trigger any material adverse change clause in your contracts with either that might push A more aggressive renegotiation schedule? Thanks.
Thanks, Craig. No, Both Square and Afterpay, they use multiple parts of our platform to power their businesses. Also, I'll note is Afterpay is not A top five customer in terms of volume on our platform. Therefore, we don't see this combination moving concentration risk significantly, Trigger renegotiations or
the like.
I'd also add both companies also have long term agreements with Marchetta into 2024.
All right. That's very helpful. Thanks.
You're welcome.
Next question, Dan Dolev with Mizuho.
Hey guys, thanks for taking my question. So it was nice to see, I think the yield improved by about a point Quarter over quarter, but the key controversy has always been like what's going on with square versus non square yields. Obviously, they declined dramatically In 2020, so can you maybe help us understand a little better what is going on? What are the dynamics that has Driven that and maybe parse out slightly more exactly what is going on, I appreciate it. Thank you.
I'm happy to take that one. I want to clarify a few points that we've heard Our non Square portfolio as there has been probably some misinformation. Number 1, the portfolio is very diverse. It includes on demand delivery, buy now pay later, expense management, e commerce enablement, amongst others. Number 2, volume from these verticals can vary quarter to quarter.
We are a usage based business. Number 3, the services that we provide To our customers can be different and the COGS structure can be different consumer versus commercial. Certain non Square programs underwent exponential TPV growth. I think we highlight in the Q That the non top 5 grew 265%, and that's wonderful and it's a testament To our platform, we absolutely look to grow gross profit dollar growth. And why?
It's because the marginal cost of processing that incremental dollar volume or transaction is de minimis. I hope that clarifies a little bit around those portfolios.
Yes. No, it does. I mean, I was looking for Some real specific data, but I understand kind of where you're coming from. I appreciate it.
Thank you.
Next question, Andrew Jeffrey with Truist.
Hi. I appreciate you taking the question. I look forward to getting to know you better, Jason and Tripp. One of the things I think that Marchetta has highlighted is network connectivity and I think it's a key point of distinction. Can you talk a little bit about Discover, in particular, as it relates to BNPL and some recent transactions that have taken And whether that's another network you'd like to add and just generally if you think you have globally ample Network connectivity to drive your global growth ambitions.
Yes, I'll start. I mean Visa and Mastercard have Blanket of the globe. If you're a merchant, you want to accept payment cards whether online or offline, we're working with Visa and Mastercard. That being said, I mean, we have actually worked with Discover for years. Discover was our first network.
They were the first network we got up and running with. They were the 1st network that we built not only our Marchetta card with when we first got started, but our 1st customers, including the Facebook card, if anyone remembers that back in the day in 2012, that was actually on the Discover network. So to your question in regards to coverage around the world, we have it. We don't we're not Authorized to operate in every single country. There's a lot of work that you need to do to get supported both through Visa and Mastercard, but with The banks to operate within specific countries, we have a plan to do that.
We're in 36 countries today and growing. But with regard to Discover, I mean, we've had a long term But they're not necessary for us to not only grow our business, but blanket the globe.
Appreciate it. Thank you.
You're welcome.
I will now turn the floor over to Jason Gardiner for closing remarks.
Well, thank you everybody that joined us on this call and for your interest in Marqeta. Have a great Rest of the summer, stay healthy and Tripp and I look forward to speaking with you all next quarter. Thank you.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.