All right, fantastic. Welcome back, everyone. Very happy, very pleased to welcome Todd Pollak, Chief Revenue Officer of Marqeta, back again to the conference. Todd, thank you so much for coming back.
Thanks for having me.
Why don't we jump in with a relatively high-level question, which is just embedded finance? You guys have used the term, investors hear it a lot. Define it for us. What does it mean to you? What's the sort of opportunity of embedded finance?
Yeah, I think if you look back maybe five, 10 years ago, Marqeta's business was essentially dealing with fintech customers. These were all startups, venture-backed, and they had to build their own audiences. That means not only do you have to be skilled at financial services, program management, and really understand the payments ecosystem, but you really have to start from scratch in terms of building your cardholders. That takes time, energy, and a lot of sophistication, and a little bit of lightning. The hit rate with those customers is probably not what you would want it to be from a likelihood, quality, and scaling of the program.
You see, actually, recently, there is news of some of these companies that started like five or 10 years ago that were doing competitive business with Marqeta or against Marqeta, announcing that something like 40%, 30% of their customers are not succeeding and are going under. If you think about embedded finance, the transition is really about finding businesses that were serviced by those fintech startups. Those companies are now saying, "I want to take those services in-house and do it myself as part of my platform and a service that I provide." An example would be Ramp is a big winner in fintech. They came out, they have an expense management program. That is not embedded finance. Finipay, which is a customer that we work with, is a platform for attorneys that provides all kinds of services.
What they're saying is, "We want to issue cards and expense management similar to Ramp as a competitor, but it's embedded in their experience and their platform so they can do reconciliation. They can do all kinds of things that a Ramp can't do that become ancillary to their business." The other big difference, I would say, is fintech is highly, highly reliant on processing. That becomes the main profit center of their business. In embedded finance, really what you have is it's an ancillary product line. It's not typically seen as the primary driver of the business. It can either be a break-even proposition that winds up kind of increasing either engagement, loyalty for the core assets of the company.
There is this massive shift away from, "My entire business is predicated on processing and making money through interchange," or whatever it might be, to, "I am using this as a means to drive my core growth of my platform business," or whatever you are doing. We think that that is where the future is. We are preparing for that, et cetera.
For those clients, it's not just about an ancillary revenue stream. It's also about engagement and deepening the relationship with their customers, et cetera.
Correct. It is very common to hear someone say, "Look, as long as we break even on this program, we see this as being a huge opportunity." An example would be, think of an embedded player that does streaming services or whatever it might be. They might have a card program, not because they believe it is going to be wildly profitable, but because they are a lot like Amazon. They know that by having a card on file, they are going to increase the loyalty, the amount of purchases that happen on the platform, et cetera. A streaming provider is not in the payments business, but they might look at it as a way to deepen your likelihood to rent movies from them, et cetera.
That makes a ton of sense. Block continues to be your largest customer, but this weighting has been declining. The non-Block revenues are growing faster. Maybe you can help us kind of dive into the drivers of non-Block growth a little bit. What's beneath the hood of that sort of shift you're seeing?
We love Block. They continue to grow. If you kind of look at the shape of our business, I think we announced this quarter, Q1, a percentage- point decline in their overall contribution. I think it's now at 45%. If you go back a year ago, it's 4 percentage points less, 4 percentage points less than it was. That's a result of the success of leaning into other growth areas of the business, specifically financial services is growing over 100%. BNPL is growing a little bit faster than our average growth. Then you've got companies in Europe. We now have $3 billion TPV volume customers in Europe. Our programs are scaling. I think it's just a testament to the fact that the business has been successfully, I guess, distributing its revenue over more customers.
I guess it also speaks to the size of maybe the secular opportunity of embedded payments, more broadly speaking, obviously, just with one customer, but more broadly speaking, that there's opportunity out there that you guys are able to address. That secular shift may be driving higher growth, basically.
Yeah, I think there's three opportunities really for Marqeta. One is we have this incredible existing customer base where we continue to see them add programs, add geographies. That is a huge driver of growth for our business. I think the second thing is we were big winners in first wave of Fintech 101. You have companies like DoorDash or Uber who continue to grow at significant rates. Their core programs are growing. We get organic growth off of our existing book of business. I think we've been very successful in the marketplace acquiring new programs, given that our platform happens to be one of the few modern players that are operating not only at scale with reliability, program management capabilities, but also capability.
Those are kind of the two pieces that really matter to folks as they start to evaluate who they want to work with.
Speaking of 1.0, I heard some echoes of Fintech 1.0 and that you aim to deal with Bitpanda that you announced this quarter. I remember crypto was kind of a sleeve or an opportunity that when that ecosystem was expanding, you guys were sort of right there. It kind of feels like we might be seeing a bit of a redux of that. Maybe tell us a little bit about that particular partnership. Maybe if you can drift into what the sort of crypto pipeline might look like at this point, generally speaking.
It's old is new. Crypto, I think everybody thought was the second coming when it first started. And with all new industries, it takes longer than people think for these things to catch on. I think with Bitpanda specifically, one of the things that's really, really nice for us, number one, it's one of the first programs in Europe that we've stood up. It's a flip. So immediate revenue. There was an existing card portfolio there that we migrated over. Not only that, but the entire sales cycle to actual live program launch with cards active in market was a quarter. Really, really fast. That was really great. Specifically, that is now, I think, one of 3 programs in Europe that we are program managing. Program management is brand new for us in Europe.
We've been doing it in the United States for years, but we hadn't had the capability in Europe. We are really, really excited about that opportunity. I can't speak to future pipeline, but we've been doing, as you said, this for a while. Crypto has been something that we've been translating into our currency, I think, since the beginning. It is not a new use case for us. It is just, I think in Europe, it is really exciting to see this taking off. The idea that it is a flip, the fact that we did very quickly in one quarter, and then also the idea that this is going to be a managed by program, program management for us. All exciting firsts.
I think another deal that you talked about in the quarter, Perpay, was also a migration, if I'm not mistaken. I guess maybe touch on that deal, the significance of it, but then also sort of maybe comment on these are a couple of migrations you're announcing. What does that say about market share, about your guys' ability to maybe take share in the marketplace?
Yeah, I think it's a great question. It kind of goes back to if you think about this market five years ago, lots of competitors. People are making decisions with less than perfect information, meaning it's not clear who the winner is going to be in the marketplace. Marqeta is competing against lots of folks. People make decisions in the early days, again, based on imperfect information. What we are now seeing is people bumping up against the limitations of those initial partners that they may have selected. That could be anything from they did not get to scale, so they could not invest in new capabilities. They could not invest in the scalability of the platform. This is a pretty common occurrence now. Perpay is a perfect example of a company that made a decision to choose a partner in the early days.
That company, while seemingly looked like it would be one of the winners, ultimately did not succeed. As a result, they had latency issues. They were not investing in the platform, so they went looking for a partner. They came to Marqeta. Now for us, the muscle is how do we make sure that we make these very seamless transitions because migrations are complex. We announced the capability where we now have kind of a packaged offering around migrations to make it simple, fast, easy so we can do more of them because we do anticipate that there will be more. We are starting to see more and more companies, both from the legacy side and some of the modern, smaller players, really start to come to us and ask, "Can you look at our program?
Is this something that you could stand up within the next six months?
Interesting. There is a little bit of a shaking out in the industry in terms of who has made it across the finish line and who has not, basically.
Yeah. This one's interesting specifically because it's credit. It's consumer credit. For us, we made a big investment in Power a couple of years ago in acquiring those capabilities for program management for true credit and consumer. For us, this is a big milestone, too. It'll be our second consumer program that will stand up this year in credit. We have two commercial programs that will stand up in credit. We're on our way.
Yeah. Maybe talk a little bit more about credit, about that offering. It seems to represent a pretty big opportunity. I know you guys, to your point, have made the investments. It seems like the deals are starting to get signed. Maybe talk a bit more broadly about that opportunity, how it fits into the broader opportunity set.
Yeah. The way I think about great companies or great companies that I've ever worked at is that regardless of the economic cycle of where you are, you have the opportunity to sell something that is meaningful to your customer. If this was only a debit business, meaning Marqeta was only in the banking and money movement or debit business, you're limited to who's willing to do business in that particular area. As I mentioned, the big percentage of customers that we work with, our growth comes from them expanding into either new geographies or additional concepts to their program. Most banks make money from lending. At the end of the day, it's really important that we are there to provide those services to these companies.
What we are seeing is with our existing customer base, most eventually who started on the banking and money movement side want to consider some form of lending, whether that's BNPL or true lending, revolving credit. These are things that have become a big percentage of opportunities that we're looking at. We are being very, very cautious and thoughtful purposefully because, as you know, lending is a fraught business. You obviously want to be very thoughtful about who you work with and what you take on and how much and how fast, certainly in the early days. We see lots of opportunity in the market. I think we're well positioned. I think we're being very prudent about how we go about it.
You're seeing customers who are basically saying, "Look, our model is evolving in a certain direction where we need to basically pair credit with debit." That is sort of driving you guys to provide the full suite.
Yeah. The way I think about Marqeta is we want to be there for you for the entire lifecycle of the company or for your servicing of the prospective end cardholder. A great example is Flex. Flex is something we announced. It's interesting theoretically. I don't want to say it's a big driver of the business. It's not yet. I think it's interesting theoretically. What it does is it says, "Look, you are a debit cardholder, but for your transactions, you want to be able to, let's say, borrow money, but you are not creditworthy, full true revolving creditworthy.
I'm going to BNPL enable your card. What we do is we take our existing BNPL partners, Klarna, Affirm, et cetera, and then we take the issuer and we say, "We will give you these capabilities on the debit card." This person who needs access to capital for whatever reason and cannot get true revolving credit, either because their FICO score is too low or what it might be, thin file client, whatever it is, those people get access to BNPL directly on the existing card they have. The only company that can do that today is really Marqeta because we own both sides of the equation and we can match the issuers with the BNPL providers. We have a unique insight into how those people spend.
It's a very interesting opportunity, but I don't want to oversell it and say it's something that's a massive growth area for us. It just shows you how the market is evolving.
Could be someday.
Could be.
Could be.
It's a bridge between true debit and true credit. What you want is a spectrum. That way, depending on who your end user is, you have lots of options of how you might service them.
In terms of that competitive environment, you talked about some competitors who may be falling away in terms of them not having gotten successfully from point A to point B. When you do have an RFP type process, how would you characterize the competitive environment among those folks who still do have some sort of chops to compete?
Yeah. Look, one of the nice things about where we sit currently as a business is that we have both achieved a certain scale and reliability that few others in the industry have achieved, certainly of the modern players. There's almost none that have achieved the size and scale of our processing business. You have legacy players who are bigger. They are reliable and scalable to a tenth degree of they're much bigger than us. They are seen as incredibly reliable. They are also incredibly inflexible. On the other side, you have modern players who have lots of capabilities and look really great when you look at their front-end capabilities, their APIs, but they're not tested and proven on the scale side.
Most of the RFPs we're in, we're competing against either players who have a lot of scale and reliability and program management, or they have capabilities, but not both. Marqeta tends to sit right in the sweet spot in the middle there where we've achieved this unique status. We are seen as reliable and proven. We are doing program management at scale. We have big customers in debit and in credit. We have all the BNPL providers. We have a unique set of experiences going from very small to very large programs. Everything you learn over managing those programs as well. We are truly differentiated when we go out into the market because those smaller players don't have programs with a million cardholders. You're really not competing. Again, it comes down to capabilities and reliability and scale.
It is much harder to build scale than it is to build capability. Marqeta's opportunity is to build capability at a rate that makes people excited about it. We are not only a leader in the market from a, "You can trust us on program management. You are a reliable competitor. You can take our business and do flips," for example, from legacy processors who are rigid and cannot do the things that Marqeta can do. Then you have these capabilities with very small players that are becoming less and less relevant, especially for embedded finance players who do not want to take risks anymore on small companies. For us, we are truly a differentiated player when we show up in the market.
Talk to us about the kind of customer lifecycle or journey with you guys. Where do you start? Is there a big opportunity to kind of further penetrate the business? Is that an algorithm that or part of the kind of growth algorithm that's important? Where does it begin versus where it not ends, but where it ends up?
Yeah. This is a pretty typical, and we're very fortunate in this, I would say. If you have a successful program, if you get through that first ramp, if you will, which is getting to escape velocity, you have a program that's self-sustaining. There's enough users or cardholders to make it interesting enough to someone at that business that they're going to support it. They're going to look at it as, "This is a future growth opportunity for this company." If you get to that scale, what happens next is, what other capabilities can I add that will drive deeper engagement, that will increase the revenue of the program, that will get users to pay more attention to my card and get to the top of the wallet? One of the things that happens over time, and we see this pretty classically, is first, it's new geographies.
I want to take the concept that's working, and I want to move overseas. That is the first thing you see. The second is, "Okay, now that I've done that, I want to add capabilities." If you're a BNPL player, I want my own—I started with virtual cards. Now I want my own card. I want to own the cardholder. I do not want to rely on the merchant. I want to do it myself. That is a good example. I want to do it in multiple geographies. If you're a platform like Ramp, you are, "I have all these capabilities, but now I want to be in more countries." What we see is the companies that are successful tend to grow. They grow on either multiple dimensions or single dimensions.
What you're really after is programs that you believe are going to get to scale. One of the nice things about working at Marqeta, at least for me, is I get to pick and choose what I do and do not want to do. Not everybody is in that particular space yet. For us, when we talk to a prospect, we're evaluating them as much as they're evaluating us because we have resources. We have to make investments in them in the early stage of the program. One of the really great things that's happened over the last two and a half years is I would say we've talked a lot about moving up market. That is a very conscious decision. We are prepared now to work with programs that are only committed to actually getting to scale.
That was my next question about moving up market. Talk about that strategy and what the opportunity is and how you get there.
Yeah. For me, it's like a homecoming. My whole background is enterprise sales. I was used to doing business with Fortune 100 companies in the C-suite, talking to CEOs, convincing them to do things that they did not want to do. Marqeta is now at a place where we have invested significantly in hiring an enterprise sales force, adapting our products so that they are prepared for the enterprise. What that means is everything from the ability to build an app, a white-labeled app, so that the company does not have to actually embed directly into their website. The bigger the company is, the less likely the buyer is going to control the website experience. You have to have the ability for this person to launch without having to touch that core asset. We have invested in the UX toolkit, which we launched and announced, I think, last quarter.
The other is the migration piece. We're investing in that for that exact reason. As you move up market, most of these people have programs. They're on legacy processors that are rigid, can't have certain capabilities. We want them to have the ability to move quickly. One of the nice things about moving up market is the likelihood that those companies will get to scale. They have existing user bases. They have marketing engines. They have huge investments behind their marketing. They have strong brands. Consumers are usually, or their business users are usually already high, high loyalty affinity. None of that has to be built.
For me, moving up market is a testament to we have achieved a level of success where we do not have to play in the, "I am going to make bets on 100 companies this year, and 10 of them are going to get to scale.
Do you have all of the kind of organizational type capabilities that you need to kind of pursue that move up market?
I would say for the last two and a half years, that has been the focus, is to try and develop into a true enterprise class sales organization. I would say you're always building, and you're always in your journey. I'm incredibly pleased with the progress we've made. We don't have any brands to announce, but the strategy, I would say, is not only taking root, but it seems to be bearing fruit.
That's great. Earlier in our conversation, you called out some of the recent signings that you had, which were in Europe. Talk about Europe. How's that going? How does it differ from the U.S.?
Yeah. Europe is fascinating. It's almost like it was, it's five years ago in Europe, even though there are way more sophisticated payments ecosystem. So primarily, when I got to Marqeta two and a half years ago, the European business was all fintech startups, neobanks, trading platforms, et cetera, crypto. And that has continued. Whereas in the U.S., we've somewhat moved beyond that. The growth in Europe is massive. You're talking about 100% beyond kind of like where we were a year ago. TPV volume there is massive and growing really, really fast. We're enjoying these very, very successful fintech startups that it's the core of their business. Marqeta is powering their entire business model, and we're successful, which is great. I think now we're anticipating the future, which is we have to move up market there as well.
The move up market is not quite where we are here in the U.S. It's not embedded finance all the way. It's really more about program management capabilities. Those are things we did not have in Europe two and a half years ago. Incredibly proud of the ability now to manage programs at scale. We announced TransactPay, which is an acquisition we made so that we could have an electronic money license for our customers. We are no longer reliant on third parties for BIN sponsorship, which is a major improvement for us in Europe and something that is table stakes if you are going to move up market.
While I would say we are, like, Europe is slightly behind the U.S., it is in that really interesting fast phase of growth where you have got these really, really talented fintech leaders who are fundamentally changing the fabric of the market there. They are competing with historically very traditional banks and, I would say, money trading partners or trading platforms.
Is it more so than is the opportunity there more sort of on the fintech side of things, or is there also an embedded finance opportunity in Europe?
Yeah. If it wasn't clear, it's fundamentally more of a progression. We're going from this very, very fast fintech growing business to now program management. The next phase of growth being we have to be able to be a BIN sponsor for our customers and not rely on third parties to do that for us or rely on the partners themselves to do it. It was almost out of necessity. In Europe, we had a lot of customers who were their own BIN sponsors or would go out and find a provider or a BIN sponsor for them. That's not something Marqeta would provide. That forces you into a box. You can't compete with everybody when you're like that. Thus, the very, very savvy fintech strategy, right? Let's go after very, very savvy fintechs who know how to do this stuff themselves.
I think the next phase of growth in Europe is moving into the, "We can be your BIN sponsor, and we have program management capabilities." Embedded finance is probably another two years off is what I would say.
I see. I see. What about the overall, the kind of regulatory environment? This is not necessarily a European-focused comment, but we have certainly seen a lot of changes in the regulatory environment here in the U.S., I believe, at least the headlines would suggest. I am just curious if that has had any bearing on your all's business, meaning comparing what was maybe a year ago to what is today, that time frame.
Here's what I will say. I think you see fewer wild ideas in the market. I mean, we used to, people would come to us, and they'd have parent-of-brain schemes that they were very, very clever on paper. Someone found an inefficiency in the market that they could exploit. All they need is a rule change, or all they need is something that never existed before, if you could just build this for me. And Marqeta, at one point, was very happy to chase that. I think you see fewer and fewer of those ideas coming through to Marqeta. That's not because of Marqeta. That's just naturally, I think the environment has changed. Somewhat for the better, because I do think that those particular ideas have a lower hit rate, meaning less likelihood to succeed.
You find yourself doing a lot of things, and you learn a lot, but you do not necessarily get the return on investment. I think now what you see is the use cases are very, very standard with a slight competitive advantage that the brand thinks it has, or it has a dynamic that exists with its customer base that it believes it can exploit through a very common use case. There are maybe five things that we see over and over and over again now that are the same use case that people want with a slightly different flavor. You do not see these massive disruptive things anymore.
A question I meant to ask you on the European side in terms of the sort of economic model in Europe. I know there's a kind of a regulated interchange environment over there. How does the program economics kind of differ over there, US versus Europe?
Yeah. In some respects, it's funny. I used to say startups that are lean and have fewer resources tend to be wildly successful because they have to force to manage within the confines of what's possible. Like I worked at Google. The problem that Google has with innovation is that it has almost too many resources, too much money. Everything is like they want to create a business overnight that's a wild success. It's not really the way objective success happens. One of the nice things about the European environment, being that interchange is lacking, is that these companies are finding ancillary ways to make payments business drive their core business. This is what I was talking about before. We have a customer, we've talked about them before, a trading platform that's giving away 1.5% cash back on a debit program in Europe.
How can they make that possible? It is based on their ability to monetize their trading activity on their platform. Their users are subscription folks. They actually sign up. They pay a regular monthly fee to have access to the trading platform. This business, interchange aside, is viewed as it has nothing to do with the card program being profitable as a standalone business. It is about driving the core asset and the core functionality of the platform. You see that much more in Europe because there is this scarcity of revenue on the card program. They have to be more creative in what they do.
Interesting.
We can probably learn some things from that.
I think we probably can. Fantastic. We're out of time. Great pleasure to talk to you.
Yeah. You too.
Thank you so much for coming back to the conference.
Appreciate it.
Thank you.