Marqeta's C-suite shake-up accompanies a shift to add large banks

The pandemic-era boom for neobanks and fintechs is correcting, leading Marqeta to search for different clients and new leadership. 

Jason Gardner, Marqeta's founder, is preparing to step aside as CEO for a new role as executive chairman as the digital card-processing company looks to work with larger banks after years of catering to fintechs and neo banks.

Marqeta's stock declined about 25% on Thursday after Gardner told analysts the previous day while discussing second-quarter earnings that he's searching for a new CEO. Marqeta's chief operating officer Vidya Peters also is leaving.

The 12-year-old Marqeta has relied heavily on a few sectors and companies, including Block—formerly Square—which drives almost 70% of the company's revenues via Cash App, which Marqeta powers.

The surging pandemic-era growth of startups whose transactions Marqeta powers through its digital card-issuing platform—including DoorDash, Instacart and the buy now/pay later fintechs Afterpay and Klarna—helped Marqeta pull off an IPO last year that pushed Marqeta's market value to more than $16 billion in June 2021.

But as fintech stocks sagged this year, Oakland, California-based Marqeta's valuation has fallen to below $5 billion.

Marqeta's second-quarter net revenue rose 53% from a year ago to $187 million, but the slowing economy is dragging down its growth prospects, Mike Milotich, chief financial officer, told analysts during Thursday's earnings call. 

"Many of the customers [we] signed in the last 12-plus months, as well as crypto customers, will ramp their businesses more slowly than we expected a few months ago," he said.

Transaction volume from Marqeta's customers in the retail, travel and entertainment sectors also has decelerated, while volume is still strong for payments at supermarkets, drug stores and gas stations that flow through Marqeta's platform, according to Milotich.

Buy now/pay later remains one of Marqeta's fastest-growing categories, where it powers many of the virtual cards enabling merchants to extend instant loans at the point of sale to consumers. But BNPL-sector growth fell below 100% for the first time during the second quarter, Milotich said.

Block accounted for 69% of Marqeta's revenue during the latest quarter, up from 66% during the first quarter of this year. Marqeta earns fees for opening accounts and managing transactions tied to Block's peer-to-peer payments app, Cash App, among other services.

In its quest to diversify, Marqeta last year added credit card-issuing capabilities to its platform, and recently rolled out 40 new credit application programming interfaces powering physical and virtual credit card products it can support on a white-label basis, Gardner told analysts.

The company wants to convince large financial institutions to use Marqeta's technology to modernize their existing credit card-issuing, underwriting and processing capabilities.

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"When it comes to large financial institutions' progress, they want similar capabilities to the disruptors," Gardner said.

A serial entrepreneur who previously founded the real estate payments platform PropertyBridge before selling it to MoneyGram in 2007, Gardner said he's stepping down to make room for a new CEO capable of "scaling" a high-growth company.

When a new CEO takes the reins, Gardner will become executive chairman.

Chief operating officer Vidya Peters also is leaving the company, Gardner said. Simon Khalaf, currently chief product officer, has taken over her duties on an interim basis while the company seeks a replacement, Gardner said.

One analyst noted that Marqeta's plan to expand to other sectors and work  more closely with traditional financial institutions could solve some of the company's growing pains.

"Marqeta's growth is all on the shoulders of companies using prepaid debit cards for banking services through digital account opening, and while that's been a fast path for expansion with fintechs and challenger banks, the company is starting to reach saturation in certain sectors," said Richard Crone, a principal with Crone Consulting, noting there is still broad opportunity to expand to wider economic sectors.