Marqeta: Twillio of Modern Card Issuing

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Card issuing industry has seen little innovation, if any. Legacy solutions are built on mainframes. They run isolated solutions with multiple code bases so anytime, anything needs to be done for a customer, it was done at issuers terms without any flexibility. Card issuing is incredibly complex, highly regulated, and resource intensive. With gig (and digital) economy expansion post global financial crisis, there was a bigger need for flexible card issuing solutions. Marqeta idea was born over a plate of Sushi in San Francisco when Jason Gardner’s friend asked if he could build a card that can combine multiple coupons onto one card. Rest is history.

Prior to Marqeta, Jason build and sold another payments company with custom payment tool that covered entire residential real estate payment cycle. I am fascinated with what Jason Gardner has accomplished so far with Marqeta. Marqeta S1 has a lot of insights that can be useful for payment startups around the world. In no particular order, I will highlight some key points that stood out to me:

Mission: to be the global standard for modern card issuing empowering builders to bring the most innovative products to the world.

Marqeta

Marqeta platform is built with open API’s in places. This puts complete control over payment transactions into the hands of businesses enabling them to develop modern frictionless payment experiences. This can be done without needing to integrate with card networks and issuing banks. Such ease has resulted in use cases that would have been difficult to imagine otherwise – consumer paying through an app using installment payments instantly online, receive stimulus checks directly on debit cards etc. Innovative companies with new business models are emerging everyday where payment use cases is embedded directly in product experience. Developers can build such use cases using open API’s in days (and not months) and launch new consumer friendly solutions in the market. This has resulted in some of the most disruptive products we have seen in last decade – Square cash app, Uber, DoorDash, Marcus by Goldman Sachs etc. using Marqeta in backend for seamless consumer experience.

Marqeta platform overview

Example use cases

DoorDash uses Marqeta for their red card , which is a debit card solution given to every single Dasher. When a swipe is made at restaurant for food delivery by Dasher, a just in time request will be send to DoorDash through Marqeta with additional data like merchant MCC codes, their ID codes, amount etc. to name a few things. This helps DoorDash to only authorize charges that are legitimate. It helps greatly in reducing fraud. As soon as a food delivery order is paid, DoorDash can receive a push notification from Marqeta and use it to generate an SMS to notify its cardholder such as “your order will arrive shortly”. 

DoorDash is able to provide tokenized red cards on the market to these dashers, they can get them on the road sooner, they start making money sooner, and they’d also don’t care about a red card. This is very powerful and wouldn’t have been possible with old issuing platforms. This has helped DoorDash unlock a lot of new business in United States and Canada. They went to Australia from ideation all the way to implementation incredibly fast and were able to launch Australia in record time.

Customer addition timeline and TPV growth – Marqeta S1

Square cash app ecosystem has grown to include not just peer to peer payments, but also card transactions, the buying and selling of Bitcoin, as well as investing in stocks. Marqeta helps power two parts of the customer experience enabling customers to deposit and spend their money. Cash app offers customers a free customizable Visa card, which is built on the Marqeta platform. Cash card plays a critical role for cash app giving customers the ability to make purchases using their funds in their account, whether by using their physical cash card in store or online. Using Marqeta’s modern developer centric KPIs, platform is configurable and customizable, ultimately helping cash app deliver faster time to market.

Coinbase uses Marqeta platform to build its Coinbase core, which allows its customers to make purchases either online or in stores, with Coinbase selling the required cryptocurrency to fund the US dollar value of the purchase, effectively allowing card holders to monetize the value of their cryptocurrency holdings. The advanced capabilities of Marqeta’s modern card issuing platform are supporting several unique capabilities with a Coinbase card in the US, including industry first just in time funding feature to make authorization decisions at the point of sale based on a user’s available cryptocurrency balance.

Marqeta Platform and Technology

Marqeta platform was built by developers for developers, they reimagined what card issuing looks like by building it from the ground up. Platform is cloud native in open API base that puts the control part issue in the hands of businesses and allows developers to customize the product in the user experience. It is designed to reduce complexity for card issuers enabling a full spectrum of card issuing and transaction processing services in a single solution. Marqeta platform offers three primary capabilities – Marqeta issuing, Marqeta processing, and Marqeta applications to launch, scale and manage card programs.

Marqeta product offerings

With Marqeta issuing, customers can issue prepaid debit, and credit cards in any form factor, physical virtual or tokenized. As of March 31 2021, Marqeta customers issued approximately 320 million cards that can be instantly provisioned directly to wallets like Apple Pay or Google pay. Marqeta handles the relationships with the issuing banks and direct integrations with the card networks, enabling their customers to focus on building the card programs that are specific to their business without worrying about complex relationships or integrations themselves.

Starting with in depth documentation, and detailed quickstart guides, developers can easily test hundreds of open API’s and customizable card spend controls all within a private sandbox. Once the developer signs up, they can begin to create a card program beginning with the card product. The card product defines the card type either a physical or virtual card, the card usage controls and its configuration. A set of spend controls are also created that govern the transactions on this card. These can be set for purchase amount, origin, type, location, and much more. As different transactions are tested, they will pass or fail based on the spend controls defined for the card product. Upon successful testing, a virtual card is created, tested and ready to issue.

Marqeta platform processes transactions while giving customers full control of the transaction or authorization. Transactions can be authorized based on custom rules configured through the Marqeta platform, which allows businesses to apply unique business logic for each transaction or deploy fully tailored spending limits for specific categories. Marqeta’s industry first, Jet funding functionality empowers customers who authorize and fund each transaction or participate in the approval decision in real time. Once a card is used for a purchase, Marqeta receives a request for payment authorization from the card networks and subsequently delivers the details to customer’s system. At that moment, customer can verify this request in real time against internal data and authorization criteria, like the card holders, geolocation, real time and up to date order information or dynamic pricing data. If the criteria passes, system approves the transaction. In the case of prepaid cards, Marqeta’s just in time funding waits for that approval to move the exact amount of funds needed to the card maximizing working capital and mitigating fraud. Customer can also add custom metadata, like an invoice number or supplier code to the transaction to help the reconciliation later.

Using the Marqeta platform, customers can leverage applications that cover the entire payments lifecycle, including the developer sandbox card management trends, action monitoring, and case management. Customers can monitor balances authorizations and settlements over time to track every aspect of program. Customers can leverage data insights for compliance reporting, such as the anti money laundering act, Bank Secrecy Act monitoring, as well as KYC requirements. Marqeta provides valuable insights including foreign transactions made by a cardholder, number of times a cardholder withdrawals or transfers money in a single day etc.. Marqeta solutions are certified as compliant with PCI DSS and 3DS, among others.

Marqeta Applications

Marqeta has unique fraud prevention solution. Using Marqeta as powerful authorization and decisioning engine, customers can configure rules using a variety of inputs that approve or decline transactions based on real time and dynamic parameters. This along with KYC, 3D secure, and escape management services provides multi layer security framework, helping Marqeta customers prevent and detect unauthorized, fraudulent activities. If there’s a need to dispute charges, or cases, Case Management API endpoints help customers to optimize the endpoint dispute process. This includes submitting disputes, receiving statements, participating in arbitration, all while receiving live status updates via push notifications.

Marqeta TAM

Global money movement will amount to $74 trillion in 2021, representing approximately 4 trillion individual payment transactions. In 2019, approximately 1/10 of these transactions were carried out across global card networks in 2020 alone. Marqeta processed approximately $60 billion of card purchase volume. This is less than 1% of the estimated $6.7 trillion of purchase volume. If you look at just new verticals alone, such as the on demand delivery, alternative lending expense management disbursement, digital remittances, and digital banks. They represented over $2 trillion of core processing volume in 2019. This volume is expected to more than doubled $4.8 trillion in 2023. Marqeta has already emerged as a category leader in many of these verticals and is expected to continue to strengthen market leading position.

I believe Marqeta can process $300B – $500B of card purchase volume by 2026 – 2028, capturing more share in new verticals, new geographies, enabling new use cases, and can be worth around $100B in market cap.

My core assumptions around such volume and market cap are simple – shift to digital payments is accelerating, software and payments are converging, embedded finance use cases are growing. In card present world, mobile and contactless payment use cases are growing. Most of this behavior shift is semi permanent and will stay post pandemic. All these tailwinds are good for Marqeta.

Marqeta Financials

Marqeta’s majority of net revenue is from interchange but company also earns revenue from monthly fees, ATM, tokenization etc. As Marqeta customers grow organically, expand in new geographies, launch new card use cases, Marqeta grows with them. Customers have multi year contracts with Marqeta.

Marqeta – Highlights of key KPI
Marqeta quarterly financials – actual and %

Over long term, I believe Marqeta can generate mid 20% EBITDA margins.

In summary, Marqeta has built a remarkable business and there is still a long way to go. We believe there will be more APIfication of payment stack in coming years and are looking to partner with great founders in our core focus geography (India, SE Asia).

Footnote: Most of the material for this article is derived from Marqeta IPO related material including S1.


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