Like many fintechs, Marqeta's fortunes soared during the pandemic as its platform enabled companies like Square, DoorDash, Affirm and Klarna to quickly extend virtual payment card credentials to millions of locked-down consumers.
But in the process Marqeta drew criticism for its heavy dependence on a narrow set of customers in vertical industries, exposing the fintech to risk from upheavals in those industries and limiting the company's long-term growth prospects in other arenas.
Block's Square payment products accounted for 74% of Marqeta's revenue at the end of last year, up from 63% a year earlier, while Marqeta also relies heavily on transaction volume from several buy now/pay later firms whose growth has slowed recently along with consumer spending.
The task of diversifying Marqeta's revenue sources while maintaining a healthy relationship with Square now falls to Simon Khalaf, who took over in January from Marqeta founder and CEO Jason Gardner, who launched the virtual card-issuing platform in 2010.
Khalaf–an avid downhill skier who has led multiple tech companies to IPOs or acquisition over nearly 30 years–relishes the challenge of retooling Marqeta for its next chapter.
"The next phase of web technology will be about providing instant access to money for both consumers and businesses, and Marqeta is ideally positioned for this," Khalaf said.
Khalaf's top immediate priority is renegotiating Marqeta's Block contract, which expires next year. It includes support for Block's Cash App card, Square seller card, Square Canada and card services supporting Block's buy now/pay later service Afterpay.
During Marqeta's latest earnings conference call in February, Khalaf said he's optimistic that Marqeta will successfully renew the deal as early as this year, though analysts fret that it may result in lower gross profit for Marqeta.
Deutsche Bank said in a note to investors last week it expects Marqeta's gross profit growth this year will be flat as a result of potential price-cuts from the Block contract renewal. Marqeta has yet to show a profit. The company's valuation, which reached $15 billion after its 2021 IPO, currently is $2.34 billion.
Khalaf acknowledges it will take time to rebuild momentum in the post-pandemic era, and he plans to do it by extending Marqeta's services to new industries and geographies.
"Marqeta was a critical component in building the BNPL industry, driving the expansion of on-demand delivery and we were a foundational player in driving earned wage access, and we did it by excelling in developing the ramps that take merchants to the payment rails," Khalaf said.
While Marqeta already operates in 40 different countries and has a significant presence in Europe, Khalaf is planning to next expand the company's core services to Brazil and Mexico.
Marqeta's
While Marqeta already has card-issuing and processing capabilities, Power brings the ability to act as a credit program manager, enabling Marqeta to enter new business-to-business and business-to-consumer channels, he said.
"For B2B disbursements, invoicing, purchase orders and settlements and business-to-consumer services with P2P and instant credit, we see tremendous opportunities through our acquisition of Power," he said.
Khalaf also aims to harness the economic downturn itself to drive Marqeta's growth.
"Rising interest rates means the consumer balance sheet will be burdened with debt, and working capital will be more expensive. That means businesses will need to collect receivables immediately and make payments instantly, and our solutions with Power will enable these services," Khalaf said.
He also predicts consumers will soon begin to demand instant access to their wages to cope with economic uncertainty, and Marqeta's existing earned wage services can be adapted to meet new use cases for global businesses.
Unlike many tech firms that have weathered a rocky start to the year, Khalaf doesn't foresee any immediate layoffs at Marqeta.
"The goal is to move toward sustainable growth based on long-term trends that cater to Marqeta's specialty in connecting users to payment rails wherever they're needed," he said.
Picking the right services to emphasize will be key to Marqeta's growth, said Hemal Nagarsheth, a partner at the consulting firm Kearney.
"Many fintechs like Marqeta have gone from being a mono-service company to a multi-product company, and as they try to solve for a wider set of more diverse customers' needs, they'll need to be strategic," Nagarsheth said.
Marqeta's ability to land the right mix of B2B partners to survive different industries' ups and downs will be key, Nagarsheth said. "Partnerships in key industries for e-invoicing and streamlining accounts receivable and accounts payable is a rich area, if done right," he said.
Expanding business through existing connections is Khalaf's strength.
He was president and CEO of ad-tech firm Flurry when Yahoo acquired the firm and made him senior vice president of Yahoo for nearly three years.
After Verizon's acquisition of Yahoo in 2017, Khalaf spent 20 months as Verizon Media's senior vice president and general manager. Twilio plucked Khalaf in 2019 where he was again senior vice president and general manager, and helped navigate the cloud-based customer-engagement software platform through a pandemic-era boom.
Marqeta hired Khalaf as chief product officer in July 2022 before announcing he would replace Gardner as CEO this year.
"I see Marqeta as a hidden jewel–essentially it's the operating system of embedded finance with all the ingredients to thrive in the era of open finance," he said.
Some investors are taking a wait-and-see approach, with Morgan Stanley recently downgrading Marqeta's stock. In a note this month to investors, Morgan Stanley analysts said Marqeta will need to demonstrate new products to earn an improved rating.
"It may take multiple quarters for management to show progress," Morgan Stanley's note said.
