All right. We're going to get started. Closing us out for the second day of the conference is Mike Milotich, Marqeta's Chief Executive Officer. Mike, you've been here several times over the last couple of years and we're pleased to have you.
Thanks so much for having me.
So maybe for those in the audience or on the webcast who are not as familiar with Marqeta, I thought it'd be great to give a brief overview of Marqeta and maybe over the last five years that the company has been public, what do you think has changed and what do you think has remained the same about the story?
Sure. We were the original modern issuer-processor. So we've been at this for over a decade, and essentially our customers use our APIs as building blocks to create more embedded and personalized experiences in the card business. So what makes us different than maybe issuer-processors of the past that mostly serviced banks, we give our customers more control and agility to create more unique experiences that really engage their customer. Many of the fintech winners are on our platform, and we serve a diverse set of use cases. So, whether it's in buy now pay later with Affirm, Klarna, Afterpay, Sezzle, expense management with Ramp, BILL, Expensify as examples. On-demand delivery, Instacart, DoorDash, Uber, and then in neo banking, like Cash App and Square and OnePay, Trade Republic. These are all customers of ours that innovated in a unique way using our APIs in their own personalized fashion.
In terms of maybe what is a little different about the story, I would say there are a few trends that are emerging now that were not existing just a few years ago. I would say the first is multinational issuing. As more and more of the business shifts to fintech winners. They are becoming big businesses and are starting to expand geographically. As the business shifts away from banks always being the lead in an issuing relationship and banks are inherently local, fintechs and then enterprises are becoming multinational, that is becoming quite common. Just as an example, 12 of our top 15 customers are in more than one country on our platform, and that is definitely a newer trend that is emerging as the fintechs have gone from innovative startups to big businesses.
Right.
Now new enterprise customers that are coming to us are thinking multinational from day one. That is a big change. I would say, a second change that is quite different is what we call an emergence of a product continuum. What used to be quite common in card was either you had a debit card and a credit card, and that was the end of the story. It was relatively straightforward. Now there are many iterations in between as these fintechs and more enterprises are launching card programs and want to cater to all their users and drive engagement. So they want a product that fits everyone, which means now we have prepaid, we have debit, we have Flexible Credential where you might have buy now pay later, and a debit card combined into one value proposition.
You have secured cards, so people can do credit building, charge card in a commercial construct, and then revolving credit. So you have a whole spectrum of offerings and many of our customers now want to have several of those because each of those are going to appeal to a different type of user. That is pretty different than it was even just three, four years ago.
Yeah, that makes sense. Maybe you can talk about what the growth algorithm is. There have been a handful of moving pieces this year. So, several large renewals that are moving target over the course of the year on timing. The Block pricing tiers a smaller impact, Cash App, new issuance changes, all of which we can talk through. But I think underneath all of that some of the noise, TPV is still growing north of 30% for the last four quarters.
So if we strip out discrete items, how do you think investors should be thinking about the underlying revenue and gross profit growth of the business? How do you think about the long-term potential from here?
Sure. Let me touch on just a few of the specifics that you mentioned. We have a couple of unique items that are impacting us this year. One of them is we have two large renewals that are lowering our gross profit growth by about three points in the year. These are the last two renewals that are coming out of the fintech boom. What we started to see in around 2023 is we were starting to reprice a lot of our business because the fintech companies got a lot bigger, but also the dynamic shifted where it wasn't just all about growth, it was about profitability and profitable growth. We had to reset our pricing with a number of customers, and these are the last two.
That's about a three point impact on our growth, and once we lap these two, that's really pretty much behind us. We've repriced everyone. The second thing that you mentioned is in our Block contract, we have a bigger step down in the contract tiers. The history on that is in the middle of 2023 when we renewed that contract, they had asked for a certain number. When we reach this volume size, that's a different level of scale, and we should be rewarded for that. We agreed to that. There's sort of an abnormally large step down in the pricing tiering that they just went into at the start of this year, and that's creating about another three points of drag. Those two sort of, once we lap those next year, they're gone and that's about six points.
Our growth right now is in the low double digits we're expecting for the year. That puts us in the sort of mid to high teens-
Yep
Level. In terms of the growth algorithm as I look forward. I would say in the near term, one thing that's important is that the first component is just our fintech customers continue to grow very fast. Six of our top 10 customers by gross profit, their volume grows more than 50%. Another stat that's quite interesting is in the last two years. So, in 2024 and 2025, our top 15 customers launched over 30 new programs on our platform. Our very fast-growing large customers continue to do new business with us, and so we continue to help them expand into new products. New geographies and that's a big part of the growth. With all that, the fintechs driving all that business, what we're now seeing is enterprises want to offer similar financial services and embed that into their existing user base.
That's where the next wave of growth we believe will come. They're looking at what fintechs as non-banks achieved, and they want to insert that into their user base, and we're getting a lot of demand in that area. In terms of the long-term growth algorithm, if you think out further, ultimately the way I look at it is the share of modern card issuing. There's a wave of modernization that is coming to the card issuing business and a lot of it's being driven by the success of the large fintechs that are on our platform. If you look at our market share, we have about 2% market in issuer processing in the 40+ markets that we are active in and we're by far the largest modern player.
Modern is a relatively small piece of the market, and as you go forward the next three, five, 10 years, we expect to see a lot more existing issuers start to modernize because it's going to be hard for them to compete otherwise. That is share for us to gain. As we look out into the future, there's so much growth opportunity because if you don't have these kind of modern capabilities, it's going to become harder and harder for you to compete.
Got it. Okay. Another topic that came up in the most recent earnings call, the Block relationship clearly remains strong. You continue to add programs, services with them. That's even while Cash App is diversifying the new issuances, which we can talk about. Patti mentioned on the call the contract is coming up in 2028. You talked about a lot of the changes to the contract structures being meant to avoid cliff impacts when those come up. Obviously, it's a large contract though. Could you maybe compare and contrast the situation that you're in today versus the last renewal? Additionally, while we're on the topic are there any notable updates around the Block new issuance activity that you previously communicated?
Our last deal got done in the middle of 2023. That was really, again, coming out of that time where the fintech boom had just happened. People were becoming more focused on profitability, and there was a lot of repricing that was being done in the market as those businesses had gotten multiples bigger than the time we had signed the contract and Cash App was in that same boat. The last time we had to fundamentally change the pricing and we reduced our price by 40%. But in doing so, we also inserted a lot more price tiers that we expected to go well beyond the renewal that is coming in the middle of 2028. We still have a lot of tiers that they have not reached that we believe will make the renewal mostly a non-event.
That is how we protect ourselves and set ourselves up for success so there is not such a large price discussion that needs to be had. We are in a fundamentally different place than I think we were three years ago. In terms of the latest update on their diversification of their new issuance, we started to see a small impact in June. It stepped up in July as expected, and we expect that the new issuance will slowly move away from our platform as we move through the year. We essentially will not have any new issuance on Cash App by the end of the year. That is what we expect and what is in all of our guidance and everything is as planned.
Got it.
Just quickly to reiterate. Right now, we essentially are their only processor for Cash App, Square, and Afterpay. Their desire to diversify their processing is very reasonable and expected and almost all of our largest customers have done so at this point.
Got it. Have you seen examples of prior relationships that have moved to do this diversification? Are there any parallels that you could draw for how long it takes to reach targeted diversification?
Sure. So again, almost all of our large customers have done it, and everybody does it a little differently. Some customers are very clear in advance. One of our largest customers came to us and said, "Okay, we're going to target a 90%-10% split. And so you're going to lose new issuance for about nine to 12 months till we get to the 90%, and then you'll start getting 90% of the new issuance, and we're going to try to balance at that level." Other customers will say, "Well, I have a new product. I'm going to put that on a different platform." Depending on the success of that, if that doesn't end up being that much of a success, you'll end up with 95% of the business. If that's a runaway success, maybe you'll have 75% of the business, and that's how they choose to diversify.
Everybody does it a little bit differently. But what I can say is of many of our large customers who have done this, with all of them, we remain the majority partner. We are their primary processor in each case. And in many cases, it's actually helped strengthen the relationship because when all they've known is you. We're not perfect. There's things that they would like us to improve they would like us to see us do differently. And typically what we've seen as they diversify and they start working with someone else, it gives them a little bit more of an appreciation for-
Yeah
The things we do well, how good our technology is and it's tended to strengthen the relationship, not hurt it.
How green the grass is. Yeah.
Yeah, exactly.
Maybe before we go a little deeper, let's touch on just the broader environment. You're processing $120 billion a quarter now. You've got a pretty good read real time on the consumer and on SMBs. You said in August you weren't seeing a notable shift in spend or consumer behavior and we're assuming relatively consistent patterns for the rest of the year. Is what you're seeing so far in the quarter consistent with that?
It is. I think what you've probably heard from a lot of other people in the industry, given everything that's going on macro-wise, things are quite stable and steady. We judge that in two ways. We look at overall spending levels and things are largely in line with what we had expected. Then we also look at it by the level of discretionary spending. So we take the merchant categories, and we break them into tiers of high, medium, low discretionary spend, and we look at how those things are moving over time. That mix of discretionary spending has been very steady. Even as gas prices have gone up a lot. So we see more gas spending, it's not enough to really move low discretionary spending up significantly.
It's pretty steady and all is expected, which means we expect that to hold for the rest of the year.
Got it. Okay. Back to the business. The average deal size that you've signed in the second quarter was up over 90% year-over-year. I'm sure some of that is what we talked about earlier around non-traditional issuers. I'm curious if you view this as the market pulling you in that direction or if there's been a more deliberate shift in the organization. Then second, can you just talk about how that impacts the sales and implementation cycles and the economics on those deals?
Sure. It's a little of both. Some of it is that the newer people coming to market are more enterprises that have seen the fintech winners accomplish what they have. But some of it is also purposeful. That's where we see a lot of the growth. As the fintech winners have become big businesses, it's just harder now for a smaller company to compete, right? Six, seven years ago, or maybe even eight years ago in the earlier days of fintech, we were signing a lot of deals knowing that there'll only be a few winners here in each use case, but we don't know who that will be, and you're trying to cover a lot of the market. But that's because there was a lot of green space.
Now, you've got big companies who are operating in those spaces, so if you're going to try to enter, it's going to be hard if you're a smaller company.
Yeah.
What is happening is that the people who are entering are much more established businesses. They have established user bases, established brands, and they want to insert that type of product into that user base and utilizing that brand. That is the dynamic that we see and that is also what is contributing to the large deal size. The second part of your question in terms of how does that affect implementation, it is a little bit of a mixed bag because our existing customers who are now expanding rapidly and launching all these new programs, they can move quite fast. So they know us, they know our technology.
We have worked together before and so I would say they can launch programs really quickly. Sometimes some of our large customers will come and say, "We have this idea, and we are at ideation now. We want this live in two, three months." That is really, really fast to move that quickly, and we can accomplish that. I would say the newer enterprises, it is a little slower.
Right.
It is a bigger company. Decision hierarchy is a little more complex, and maybe there is more layers to go through. So it takes a little longer. But what we find and we are confident about is even though it might take a little longer, the probability of success is much higher because this is an established business, established brand, existing users. So even though it might take a little longer, we feel more confident that three years later it will be successful, and it will have achieved some of its goals compared to maybe some of the customers we were onboarding five years ago.
Yeah.
We are happy to make that trade-off. The last thing I would say that is important as these deal sizes go up, it is also a big part of what is driving the improvement in our profitability. We are not spread nearly as thin. We are much more efficient in who we are bringing to market because there are fewer new launches, but they are larger and again, higher probability of success. That is something that is helping us drive adjusted EBITDA growth and ultimately net income this year.
On this topic, you have talked a lot about non-fintech issuers being a bigger part of the story. Three Fortune 500 companies signed over the last year. You talked about a large U.S. financial institution, a wallet partnership. What are you seeing? Are there any kind of commonalities across the non-traditional or non-fintech issuer space?
I think the biggest commonality is that they are after user engagement, which is a little different. Fintechs, a lot of times what we were offering them was core to their value proposition. They are monetizing that directly as part of their core business. I would say the traditional issuers were also similar. As we see the enterprises entering in what they are really after is user engagement. Not direct monetization of the card program, but more something that drives their core business with increased usage. Increased time in their environment, their user experience, et cetera. That means their objectives and how they think of things is a little bit different in terms of what they are targeting. That makes them think differently about the user experience, the value proposition, how the economics are going to work.
That is a pretty big shift, and that also, though opens the door for us to provide more services. Because this is not their core business and they are really after engagement, the last thing they want to do is piece together multiple partners to create this value proposition. They are looking for you to bring the full solution, which is great because then the shift we see is that fintechs want to do a lot themselves, which means they may have used us for processing, program management, maybe a few additional services, versus enterprises are really looking for you to do a lot for them.
Right.
Because it is not their core business, it is not their expertise, and that means there is more included in the sale, but that also means there is probably better economics, higher value.
Yeah. Okay, another topic that's been coming up, you mentioned at the top of the script has been international expansion and multinational issuers. You noted that this quarter volume outside of the U.S. grew over 40%. It's roughly a fifth of TPV. It's been a year since the TransactPay acquisition close, which is what helped expand your capabilities internationally. What does the pipeline look like today on the international side, and now that you can bring processing, program management, and international licensing together, how should we think about the growth trajectory in international from here?
Sure. What we're seeing in Europe is exactly what we expected with the acquisition of TransactPay, that our pipeline would shift to whereas before, we were only offering processing in Europe, and now we can offer program management. We are establishing new bank partners so we can bring different kinds of multicurrency accounts. We can bring European payment rails, so faster payment rails, ACH remittance. We can support a much broader offering. We, of course have our risk and fraud capabilities, chargeback support, so we can really bring a holistic solution now in Europe with the TransactPay acquisition, and our pipeline now reflects that. It's having the impact that we expected.
Just as you mentioned, I touched on the beginning, I would say what's almost just as important is with the rise of multinational issuing being the demand for that a lot of the motivation behind the TransactPay acquisition is being able to have a comparable service offering in all parts of the world.
Right.
That's harder to do because the regulatory environment and how payments work in each part of the world is a little bit different. We're trying to make our solution as uniform as possible, and that's making it easier for customers like Expensify that we recently announced, moving from the U.S. into Europe, and us making that very easy for them because the way we service them here in the U.S. is the same if not, we can actually do a few more things for them now in Europe than maybe we can even deliver here in the U.S. Our ability to offer that multinational approach is pretty differentiated because we're doing that also all on one stack.
Our customers could do consumer and commercial programs, they can do credit and debit programs, and they can do that in 40+ countries and allow us to take on a lot of the burdens that come with running a card program and the regulatory oversight, and just allow them to focus on user engagement and driving value for their business.
Got it. Okay, one of the other things that you talked about was having more of a spectrum of credentials over time. Obviously, the Flexible Credential out of Visa sort of kicked this off and you were a leader in offering that capability in the market. Can you talk about the differentiation that you have versus some of the competitors in the market? Then specifically on credit, I think you talked about three programs launching over the next couple of quarters. Can you just touch on the complexion between debit and credit and flex programs and how we should be thinking about the growth across products from here?
Our differentiation really stems from us not asking our customers to make any kind of trade-offs. What makes us unique is that we do credit and debit, consumer and commercial. We do that in these 40+ countries on a single stack, and we have real scale. We've done it on a proven basis. We're at a run rate now of over $450 billion of volume. We do that in a way that also will take on a lot of the nuance pieces, like we have a lot of expertise and we free up our customers then to focus on what they know, and we'll take on the rest. That's really what sets us apart.
What is interesting about the product continuum is it plays really into our strengths because now to serve again your entire user base, you might need a few different programs, a few different products, and we can make that pretty uniform and standard for you to do that. We'll even price in a way that incentivizes that for you to do multiple programs aggregate your volume on our platform. We'll give you those economies of scale. That's really what separates us from others who might either be only do certain types of use cases or only do commercial and not consumer, or only do debit or only credit.
Right.
That's what sets us apart. In terms of our growth in credit, you're right. We have three programs that are launching. They're all a little different, which is, again, in classic Marqeta fashion, you can use our platform in a variety of ways, and it's highlighted in credit. We have an international airline that is launching a consumer revolving co-brand product on our platform, and that's coming very soon, in the coming weeks and months. That's going to be coming out very soon. We're excited about that. The second one is and you mentioned Flexible Credential. Mastercard has launched their Flexible Credential this year the MTN, and it's a program on Mastercard where it's a secured card, so credit builder card with buy now pay later injected in.
We're excited about that because we think that'll be certainly one of the first MTN launches, and so it's going to demonstrate our leadership in Flexible Credential on a second network. The third one is a commercial expense management program, where we're doing a lot of the credit management. Unlike some of the ways we support existing customers who are in that space. Who, again, were mostly fintechs, and therefore were taking on a lot of things themselves. In this case, this is an enterprise, and so we're doing a lot of the servicing, we're doing a lot of the cardholder onboarding. We're providing a much more managed service that's a commercial charge card product.
Got it. Sounds like a lot of movement on the credit side.
It is.
Maybe sticking with some of the growth in some of these higher growth products. The lending and expense management categories. I think, have been standout the growth the last couple of quarters. BNPL, obviously a lot of market tailwinds and you work with the market leaders. Similar dynamics on the expense management side with your long-standing partnerships in that space. How do you think about the runway in each of these categories, and how much of that growth is the category itself expanding versus you taking bigger share of customers' programs and launching more programs with them?
Sure. I would say it's a combination of both. Certainly, the biggest thing is that our customers are winning and they're growing much faster than the market. They are winning market share and that fuels our growth. That's certainly a big part of it. There are many instances also where either as they launch new programs or they expand into new geographies, more of that business is coming to us because many of our customers diversified. Because most of our customers started on our platform, when they first started diversifying a few years ago, we had more to lose, as we had 100% of the business for most of the fintech winners. What's happened now in a lot of cases is they're starting to expand in new areas just with us, or maybe they have reached their level of diversification they're targeting.
It's more that in the past, there was a small headwind that we were facing as they were diversifying a little bit, but now they're at steady state and so we don't have that drag on our growth, and that's what's creating a lot of strength in both buy now pay later and expense management. It's a little different in both. In buy now pay later, I would say the biggest drivers of that growth are the Flexible Credential. The shift in the business model from something that's merchant checkout driven to a card that's given to the consumer that can be used anywhere.
Yep.
Visa or Mastercard is accepted. That is becoming a big part of our business. It's now over half of our buy now pay later volume. It's ramped up incredibly fast. Also those buy now, pay later customers are expanding geographically. That's what's fueling that. On the expense management side, it really has to do with the customers of ours that are offering modern expense management is just winning in the market, and therefore they are also expanding geographically, and that's what's having it grow over 50% now. Both of these use cases, we think are just at a structural advantage. Buy now pay later is still a relatively small part of overall spending, but the number of people who utilize it's no longer a small cohort. It's sort of-
Right
All age groups, all levels of income. It is becoming a much broader base use case. The consumer card is making it even more accessible to be utilized. Expense management just the modern capabilities and the flexibility that our platform provides is helping those customers along with their great software to win in the market, and they just continue to do so. I think that will not slow down for some time.
Got it. Pivoting here on stablecoins. You have announced partnerships with zero hash and BVNK this past quarter. You are a participant in the Open USD standard. Some of your larger customers have also talked about issuing stablecoin-linked cards. What opportunity do you see in stablecoins for Marqeta's business, and then how do you bucket the different types of opportunities related to stablecoins?
Stablecoin is very good for money movement, right? It is cheaper, faster, it is very effective. At least at this point there are not a lot of use cases for then how to transact in stablecoin. That is where a card comes in where the underlying balance might be held in stablecoin, but you can use a card to transact in fiat currency in the market, which allows then the tens and tens of millions of merchants who accept card today do not have to make any change to how they accept payment. That is really the opportunity. As Stablecoin grows more and more as a way to move money, it is just going to create more and more demand to make that useful to conduct commerce.
We have set up these partnerships with both zero hash and BVNK, where great partnerships are created from win-win outcomes, and these are great examples of that, where they can provide the stablecoin infrastructure, the compliance oversight, and the money movement that is on the chain. That is not something we do, and we can bring the card-issuing component and manage the program management and make the card seamless. We have a lot of experience in this space. We were the early innovator on crypto-based cards. The Coinbase debit card, Bitpanda, who is a large crypto exchange in Europe, they both use our platform for a card that has crypto assets as the underlying balance. We actually have a lot of experience with this and we are excited about the opportunities going forward.
Okay. Another one I wanted to squeeze in here on agentic. You talked about how the first wave of fintech really put modern card issuing on the map, and you have a very large share of modern card issuance. When I think about agents out there making payments, provision with their own credentials, probably using the latest and greatest security and credentialing features from the networks, it would seem that Marqeta would be well-positioned to facilitate the issuance of some of those credentials. How do you think about your positioning in the market and overall, where do you think we are in that journey of building out agentic, the infrastructure behind agentic commerce?
We do think we're well-positioned, and we're excited about the opportunity, although we also believe it's going to take time.
Yeah.
I think for it to be meaningful, it's going to take a good amount of time because people spend behavior, it's harder to change. Why we think we're well-positioned is that to be successful, we feel like you're going to need to one, know the customer very well, because fraud is going to be even more challenging to manage. You're going to need to know your customer, and then you're also going to probably need to be very good at tokenization, and you're probably going to issue very targeted credentials. You're not going to send them off with the card you use every day. You're going to set that agent off for something very specific with a very specific budget and you're going to narrow that in.
This plays to our strengths in tokenization and virtual card issuance that we think will become a big part of the success in agentic. We also feel that it'll become more issuer-driven. A lot of the conversation right now is more merchant-driven in agentic. Merchants want to make sure they can service agents when they come to them looking to buy. But to manage the fraud in this space, we think a lot of the market is going to be driven by issuers. You're going to go there to someone who knows you to get to send an agent off to go try to buy something for you, because otherwise it's going to be very hard to manage the fraud in the space. We're excited about it. It'll take time.
I think what maybe fewer people are talking about that might be more nearer-term opportunity is actually more in commercial.
Yep.
In commercial, we think there are a number of people interested in it, and it's a little bit easier because if you think about your own behavior as a consumer, you shop from all kinds of places.
Right.
It's a little more random. It's not as scheduled. Versus in businesses, you have a certain number of suppliers.
Patterns, yeah.
Yeah. You are on a pretty structured schedule, and you might have multiple suppliers who you might want to send an agent off and look for the best deal at this time and do that in an automated fashion. So, we actually think that there's good opportunity in commercial that may be a little bit nearer term than the consumer side.
Yeah. No, that makes sense. I think that's just about all the time we had. But Mike, thanks for joining us today. I really appreciate the conversation and hope to have you back next year.
Thanks again for having me.
All right. Take care.