Marqeta, Inc. (MQ) Q2 2021 Earnings Call Transcript

Marqeta, Inc. (MQ -3.99%)
Q2 2021 Earnings Call
Aug 11, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Marqeta's second-quarter 2021 earnings conference call. [Operator instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Stacey Finerman, vice president of investor relations to begin. 

Stacey Finerman -- Vice President of Investor Relations

Thanks, operator. Before we begin, I would like to remind everyone that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our investor relations website, including our prospectus dated June 8, 2021, and our subsequent periodic filings with the SEC such as our quarterly report on Form 10-Q for the quarter ended June 30, 2021. Actual results may differ materially from any forward-looking statements we make today.

These forward-looking statements speak only as of the time of this call, and the company does not assume any obligation or intent to update them, except as required by law. In addition, today's call may include non-GAAP financial measures. These measures should be considered as a supplement to, and not a substitute for, GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release, which is available on our investor relations website.

Hosting today's call are Jason Gardner, Marqeta's founder and CEO; and Tripp Faix, Marqeta's chief financial officer. With that, I would like to turn the call over to Jason to begin. 

Jason Gardner -- Founder and Chief Executive Officer

Thanks, Stacey. Thank you, everyone, for joining us for Marqeta's first earnings call as a public company. It's great to be connecting with you all. We had a very successful IPO.

We raised a lot of capital, and we're off to a great start. Tripp and I are excited to share Marqeta's second-quarter results, as well as an overview of our business. I want to cover a couple of financial highlights about which Tripp will provide additional detail. Next, I will talk about three key themes for the quarter.

And lastly, for those on the call who are less familiar with us, I'll provide some focus on Marqeta. With that, let's begin. Our second-quarter results demonstrate our solid product market fit and execution in this rapidly evolving digital payments landscape. $27 billion in total processing volume, or TPV, a 76% increase compared to the same quarter of 2020.

$122 million in net revenue, a 76% increase compared to the same quarter of 2020. There are three key themes that I want to highlight from the second quarter. First, we continue to land winners. Google chose Marqeta to power the launch of a digital card for Google Pay balance users, allowing them to instantly use their balance through a virtual card tokenized in Google Pay.

Second, we continued to expand and grow rapidly with our current customers. We expanded our relationship with Square. Square announced Square Banking services during the quarter, and we are proud to power the Square checking product. And third, we continue to build long-term relationships with our customers.

During the quarter, we extended our agreement with Affirm until 2024. This is a confirmation of our enduring value of our platform and our robust partnership. Again, Tripp will provide more details on our second-quarter performance in a few minutes. Still, this is our first earnings call.

I would like to spend some time providing you a brief overview of Marqeta, the industry tailwinds driving our growth and a few of our strategic initiatives. Marqeta created modern card issuing, which is at the heart of today's digital economy. When you think of the card in your wallet, you see very little and have seen little innovation in decades. Now, imagine a card that could take any form factor you want it to, solve significant payment problems at scale and disrupt entire industries, from authorizing transactions based on dozens of dynamic criteria, to allow you to pay in installments, to creating a brand-new consumer or commercial experience.

These cards can be physical, virtual or tokenized into mobile wallets. They can be credit, debit or prepaid built by developers in days using cutting-edge tools instead of months. This is modern card issuing. When you order food using DoorDash or groceries using Instacart, modern card issuing works in the background as money moves from the app to the delivery driver's card.

When you buy a big screen TV and pay for it in installment using Affirm or Klarna, modern card issuing helps move money to the payment card used to pay the merchant seamlessly. Some of the most disruptive companies over the last decade, such as Square, Instacart, Uber and Klarna use Marqeta technology at the heart of their product. We are the first modern card issuing platform built from the ground up by developers for developers in the cloud with open APIs and best-in-class developer tools. We believe we are the first to market with multiple issuing and processing innovations, including the first open API for building bespoke payment card solution, just in time or JIT funding and tokenization as a service.

These innovations put the control of designing outstanding payment experiences in the hands of customers to enable them to launch unique payment card products in a fraction of the time they could on legacy platforms. We believe that Marqeta is now the de facto modern card issuing platform and that our continuous innovation further cements and expands our market-leading position. We are deeply integrated with our customers in three ways: technical, experience and partnership. Marqeta's technology underpins our customers' core business or supports their core business.

Our people are their trusted partners as our solutions drive their key processes. Our deep experience serving the most innovative commerce disruptors, technology giants and financial institutions brings valuable issuing expertise to build and scale innovative programs. Additionally, we partner with our customers for long-term success. Our usage-based business model provides a win-win for our customers and Marqeta.

As their businesses thrive on our platform, our net revenue grows. Moreover, our customers are incentivized to bring new volume and launch new card programs on our platform as they benefit from volume-based discount via tiered pricing. As a result, we have long-term contracts that promote and maintain alignment. Customer success is at the core of everything we do and connect the customer as a core company value.

We build technologies for people who serve people. The strength and durability of our customer relationships are evidenced by our second quarter year-over-year net revenue growth of 76%. We managed to support massive innovation for these customers at a considerable scale. Our platform operates at 99.995% uptime, while volume through the Marqeta platform has increased 30 times in the last four years.

We operate in 36 countries and growing. We believe the opportunity within payments and modern card issuing is tremendous. There's a $74 trillion global money movement market, of which $30 trillion is international card issuing. The Marqeta platform processed $60 billion last year, a small fraction of the total card issuing opportunity.

With the accelerating shift to digital payments, the market continues to expand. We believe Marqeta has the modern technology, deep experience and momentum to capture a growing share of this market. We believe this TAM is a vast ocean of opportunity ahead of us as everything moves to digital, electronic transaction, changing the entire landscape of how the world is moving money in the future. Marqeta is well-positioned to capture this large opportunity in three ways.

First, the shift to digital payments is accelerating. More and more transactions are moving online. And when they are in person, people worldwide are increasingly choosing not to pay with cash. They are choosing to pay with a card or with contactless payments.

This has only accelerated during the pandemic. Second, payments are not only becoming more digital, they are also integrated more frequently into consumer and business applications. Think about the last time you used online food delivery, a messaging app or a digital marketplace. Payments is deeply embedded as part of the experience.

Software companies continually partner with payments companies to provide simple, scalable and configurable payment services to meet their end users' needs. Third, consumers' trust in new payment technology is growing. Consumers are increasingly more confident about the use of online shopping and digital payments for safety and convenience. While the pandemic may have encouraged the use of services such as Instacart or contactless payments as a matter of safety, once consumers experience these conveniences, we believe they are unlikely to change back.

Because of these three tailwinds, as well as our 11-plus years of experience, we are confident in our ability to further expand our leadership position in modern card issuing. The work we have achieved to date and our goal to be a generational business going forward is dependent on creating an atmosphere where Marqetans can do the best work of their lives. To do this, we have recently added two new leaders to the executive team in Darren Mowry, our new chief revenue officer; and Randy Kern, our new chief technology officer. Both Darren and Randy have tremendous hands-on experience in scaling large enterprise businesses.

Darren comes to Marqeta from leading AWS through EMEA, a business unparalleled for the innovations it has powered at scale and the same laser focus on customer success as Marqeta. Randy has spent almost three decades in engineering, nearly all of it at Microsoft and Salesforce, building the technical infrastructure to support substantial high availability businesses. We are excited to see their impact on the company, and I have a strong belief that these are the right people to have on our executive team as we focus on capturing the vast market opportunity in front of us. This quarter marks the first step in our life as a public company.

We believe we are barely scratching the surface when it comes to modern money movement. We are excited about the opportunity in front of us. and we look forward to our successful track record. With that, I will turn it over to Tripp Faix, Marqeta's chief financial officer, to discuss our second-quarter financial results.

Thank you.

Tripp Faix -- Chief Financial Officer

Thanks, Jason. Good afternoon, everyone. I'm excited to talk to you today about our strong Q2 financial results and provide guidance for Q3. Given this is our first earnings call as a public company, I will talk briefly about our business model and some of the key points of our story.

We're a usage-based business, a transaction-based business and interchange-based business. We believe that total processing volume, or TPV, which increased 76% compared to Q2 of 2020 is a key indicator of market adoption of our platform, growth of our business, our ability to scale with our customers and our customers' continued usage of the platform. TPV drives the majority of our revenue as we earn interchange fees from card transactions. We share those interchange fees with our customers so that our customers' interests are aligned with those of Marqeta's.

Our customers are incentivized to bring new volume and launch new card programs on our platform as they benefit from volume-based discounts via tiered pricing. This results in long-term contracts that promote and maintain our alignment. The amount we generate after our revenue share with our customers is recorded as our net revenue line item on our income statement. We also generate revenue from other sources, processing fees, monthly platform access fees, ATM fees, card fulfillment and tokenization.

Cost of revenue consists of card network fees, issuing bank fees, card fulfillment costs and a contra line item of network incentives. When looking at costs, it's important to know that through our strategic partnerships with the card networks, we receive incentives that are earned based on achieving certain volume milestones over the year. Again, these network incentives are recorded as contra cost of revenue, and therefore, reduce our cost of revenue. Incentives can be earned in the quarter or on an annual basis.

For certain incentive arrangements with an annual measurement period, the one-year period may not align with our fiscal year. This can result in variation in our cost of revenue between quarters. Finally, netting our cost of network fees, issuing bank fees, card fulfillment costs and our contra cost of revenue, network incentives gets us to Marqeta's gross profit line item. With that, I wanted to turn to our results for the three-month period ending June 30, 2021, and then discuss some of our non-GAAP results.

Total net revenue increased by 76% to $122 million in Q2 of 2021 from $69 million in Q2 of 2020. This was a strong result that exceeded our expectations. The increase was primarily driven by a 76% growth in TPV. Our revenue share payments increased by 78% from the second quarter of 2020.

As a reminder, revenue share payments are incentives to customers to increase processing volume on our platform. As a result, net interchange fees increased 68% to $95 million. Processing and other fees increased 121% to $23 million in the quarter, primarily due to higher ATM processing volume, along with monthly fees and tokenization as a service. Let me delve into TPV for the quarter, which was $27 billion, an increase of 76% compared to the second quarter of 2020.

This increase reflects outperformance from both our digital banking and Buy Now Pay Later, or BNPL, customers, mitigated by tougher comparables from our on-demand delivery customers. First, in our digital banking vertical, it's important to note that in addition to the strong adoption of these products, we also benefited from the tax season filing deadline shifting further into Q2, from April 15 to May 17. We believe the effect of that filing delay resulted in more spending shifting into the second quarter as people receive their refunds later. Second, our BNPL customers experienced 350% growth in net revenue compared to the same quarter of 2020, demonstrating both the growth enabled via product market fit on our platform and the adoption of this method of payment worldwide.

Third, the quarter also represented the first time we encountered tougher comparables in on-demand delivery as a result of the pandemic. Although growth for this vertical was down compared to previous quarters, absolute volume levels remained high. This is a testament to the enduring nature of our changing consumer behaviors, strength of on-demand delivery services and secular tailwinds in our industry. Gross profit increased 70% year over year to $47 million, compared to $28 million from the second quarter of 2020.

Gross margin decreased slightly from 40% in the second quarter of 2020 to 38% in the second quarter of 2021, primarily due to card network fee growth, which was driven by a 76% increase in TPV and a 77% increase in the number of transactions, offset by lower growth in our issuing bank fees. I wanted to spend a little time on gross margin. Firstly, we remain committed to our long-term gross margin target of between 40% and 45%. We had a higher gross margin in Q1 2021 due to an annual recurring incentive payment from the networks.

This lowered our cost of revenue and increased our gross margin by a few points. In Q2, we had higher network fee growth. Network fees can vary significantly by merchant, NCC code, transaction type, card-not-present and the like. While we will not be providing specific gross margin guidance going forward because we're a usage-based business and our margins can vary quarter to quarter, we do not expect 38% gross margin as a run rate going forward and are very comfortable with our long-term target for gross margin between 40% and 45%.

Overall, Our GAAP net loss was $69 million, driven by our continued investment in people and technology and included $56 million in share-based compensation, of which $23 million was recorded for restricted stock units upon the consummation of our IPO. In addition, we recorded stock-based compensation of $5.8 million for secondary stock sales which should be considered nonrecurring. On a non-GAAP basis, adjusted EBITDA for the quarter was negative $10.6 million compared to a loss of $3 million in the comparable quarter of 2020. The growth was largely driven by compensation-related costs to invest back into the business to support future growth.

As a note, we do view adjusted EBITDA as a useful measure for our operating profitability. We ended the quarter with over $1.7 billion in available liquidity in cash and marketable securities. Approximately $1.3 billion of that liquidity was a result of the capital we raised in our initial public offering. As Jason mentioned in his opening remarks, we're just scratching the surface of a large addressable market.

Therefore, we believe that the best way to capitalize on that opportunity is to invest in our products, our technology and our people. I'll now move on to guidance. As we mentioned in our press release, we are providing the following guidance for the third quarter of 2021 based on our current assumptions. Net revenue for the quarter is expected to be in the range of $114 million to $119 million.

At the midpoint, this would represent growth of 38% on a year-over-year basis. Our range for adjusted EBITDA is negative $16 million to negative $13 million. Q2 was a strong quarter that exceeded our expectations. Q3 guidance reflects ongoing strength from our digital banking and BNPL verticals.

We believe Q2 net revenue included a onetime benefit from the delayed tax season, as I mentioned earlier. If we normalize Q2 for this onetime benefit, our guidance for Q3 2021 net revenue would have represented a sequential increase quarter over quarter. The midpoint for our Q3 net revenue guidance is 38% year-over-year growth as we will be one year removed from the Q3 stimulus of 2020. We remain very pleased with the growth we're seeing from both our largest customers and from our emerging customers, both in the near term and our forecast for the long run.

In addition, our adjusted EBITDA guidance takes into account increased headcount investment as we look to add additional talent, primarily in our product and technology teams. While we're not giving guidance for Q4, we did want to provide additional color. Historically, we have seen a positive bump in Q4, driven by increased consumer spending, which has traditionally manifested itself in our digital banking and Buy Now Pay Later verticals, given the Q4 holiday season. In past years, we've also seen an increase in our expense management vertical due to travel.

However, we remain thoughtful and prudent as we're all grappling with the changing dynamics of the COVID pandemic. In summary, we had a very strong Q2 overall and are very optimistic about the quarters ahead, our customers and the opportunity ahead of us in modern card issuing. I would now like to turn the call over to the operator to open up the line for Q&A. Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions] Your first question comes from Tien-Tsin Huang with J.P. Morgan. Please go ahead.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Thanks so much. Good afternoon, and congrats on the first public call here and the great growth. I wanted to ask -- well, overall results, we are comfortably ahead of our estimates. And I know there are a lot of puts and takes that you just went through, but I want to ask simply on the revenue side, that was up handily sequentially while gross profit was slightly down sequentially.

What would explain the difference there, if you were to summarize it? 

Tripp Faix -- Chief Financial Officer

Thanks, Tien-Tsin, for the question, and good to hear from you. I would say on the top line, outperformance was driven by three factors. Number one was continued strength in our digital banking vertical. The second is the BNPL, which saw 350% year-over-year growth.

And the third was expense management where we saw 100% growth year over year. Does that answer your first question? Happy to go on to the gross margin? 

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Yeah, no, for sure. Then on the gross profit side. 

Tripp Faix -- Chief Financial Officer

Yeah, from a gross profit perspective, I'll first start off by saying that we believe our performance in Q3 will be in line with our target of 40% to 45%. We did have a higher gross margin in Q1 due to an annual recurring incentive payment from the networks, which increased our gross margin by a couple of points. In Q2, we had higher network fee growth. Network fees can vary significantly by merchant, by NCC code, transaction type, card-not-present and the like.

I will point out that we did have higher ATM volume this quarter. But I think, the most important message here is we believe that our performance in Q3 will be in line with our long-term target of 40% to 45%. 

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Got it. So you moved away from some of the nuances you just called out. No, it's very clear. So maybe if you don't mind, one more quick follow-up maybe for Jason.

I'm sure and I heard that amazing stat on Buy Now Pay Later. Net revenue up 350%. I had to read that a couple of times to make sure I saw that right. So for you, Jason, you've seen a lot of use cases take off, I'm sure, right? And I would love to hear your thoughts on Buy Now Pay Later in general and of course, what Square-Afterpay combination means for Marqeta, if you could opine on that.

Thanks.

Jason Gardner -- Founder and Chief Executive Officer

Yeah, so as you pointed to, we've seen this popularity on our platform. As far as Buy Now Pay Later as revenue for the vertical has increased 350% from the comparable quarter of 2020. So if we point to the work that Square and Afterpay when out to do, both founder-led companies, both build beautiful customer experiences. It just demonstrates that Buy Now Pay Later is an immensely popular method of payment that we believe is here to stay.

And we -- as a reminder, I believe you know this, Klarna, Affirm and Sezzle are also customers of Marqeta. And I think, this deal just simply illustrates every part of the financial services value chain to be disrupted, which plays into our strength as a modern card issuing leader. We saw really Buy Now Pay Later get started in Europe with Klarna. We saw, obviously, that come to the United States with Affirm.

We've seen Afterpay who we support in the U.S., we support in Australia and New Zealand continue to grow. So both of these Marqeta customers, both Afterpay and Square coming together is pretty significant. And we believe we'll see continued growth in the Buy Now Pay Later vertical.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Thank you.

Operator

Next question, Josh Beck with KeyBanc. Please go ahead.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Thank you so much for taking the question, and my congratulations as well on life as a new public company. I wanted to go to the Google announcement. Obviously, that's a very high-profile win. They have really incredible internal resources.

I'm sure there were lots of other companies that were bidding for this business. So maybe just help us understand what you felt like really helped differentiate you and really create a win-win for both companies as they're choosing you? 

Jason Gardner -- Founder and Chief Executive Officer

Yeah, thanks, Josh. I would start their belief in modern card issuing to use the best tools in the market, the partnership, the technology and the experience is paramount. And you're right, Google talks to everybody across the world that issues and processes cards. But the belief in Marqeta and our technology and where we're headed was paradigm for them.

Our platform is simply designed to be able to help the world's most innovative companies execute game-changing products at scale, and Google chose Marqeta for that. The product that we built with them is we're powering a new virtual Google Pay balance card. It allows users to easily spend their Google Pay balance through a virtual card tokenized into the mobile wallet, the Google Pay Wallet, and use that accepting merchants, which we today -- there's a lot of merchants, especially here within the U.S. that accept that card.

And before, Google Pay balance users were very, very limited into how they can use their funds. So this really opens up an entire ecosystem for them. I would say the tailwinds in why we both believe in the product is contactless payments and mobile wallet use, which has truly surged toward -- surged during the COVID-19 shutdown and consumers have significantly moved away from cash and physical cards to mobile wallets. Like my mom uses Google Pay all the time now, which is a great example.

She's a bellwether for accepting technology. Marqeta was one of the first companies to enable companies to instantly provision tokenized cards into mobile wallets. And we've already done this at scale with companies like J.P. Morgan, Square and others.

So very honored to be working with Google and launching this product in market. 

Josh Beck -- KeyBanc Capital Markets -- Analyst

Well, congratulations. And a follow-up maybe for Tripp, you, obviously, have given us some very helpful context on the verticals that were particularly strong within the quarter. You had some comments also about on-demand delivery. So maybe just at a high level, as you build out the forecast for the second half of the year in Q3.

Just anything that we should be aware of with respect to the different verticals and some of the cross currents there. 

Tripp Faix -- Chief Financial Officer

Absolutely. Our Q3 guidance reflects ongoing strength from digital banking and BNPL verticals. We have a midpoint of our net revenue guidance of 38% year over year. We also mentioned that while we are not giving guidance for Q4, we did want to provide additional color.

Historically, we've seen a positive bump in Q4, driven by increased consumer spending, which has traditionally manifested itself in the digital banking and BNPL verticals, given the holiday season. You asked very specifically about on-demand delivery. And we have seen some softness in on-demand delivery. But I also want to highlight that we see continued elevated levels on the platform.

And so that, in our mind, is a testament to the services that they are providing via our platform. 

Josh Beck -- KeyBanc Capital Markets -- Analyst

Congrats. Thank you.

Operator

Next question, Ramsey El-Assal with Barclays. Please go ahead.

Ramsey El-Assal -- Barclays Investment Bank -- Analyst

Hi, thanks so much for taking my question this evening. There's a lot of moving parts in the Q3 guide, lapping stimulus, timing of taxes, etc. Can you just review for us, again, sort of those moving parts? And also comment on the visibility you feel you have now to Q3? I mean, maybe compared to sort of in a more normalized year, do you feel like you have that same type of revenue visibility now that you had historically in the business? 

Tripp Faix -- Chief Financial Officer

Thanks, Ramsey. That's a multipart question. So let me attack it from various ways, I'll say. We believe we benefited from the tax season filing deadline shifting further into Q2, from April 15 to May 17.

We believe the effect of that filing delay resulted in more spend shifting into the second quarter. And when we normalize Q2 without this benefit, we believe net revenue growth would have been in the low 60s to mid-60s in Q2. Comparing this to our midpoint guide of $116.5 million, on a pro forma basis, would be increasing sequentially quarter over quarter. You talked a little bit about visibility to Q3.

I think, everyone's kind of dealing with the lapping of stimulus payments from Q3 of 2020. But we feel very good about our midpoint guide of 38% year-over-year growth. Again, that's supported by our digital banking and strength in our BNPL vertical. 

Ramsey El-Assal -- Barclays Investment Bank -- Analyst

OK. One quick follow-up. There's been a lot of chatter recently about the durability of the small bank carve-out in the Durbin Amendment and the ability of fintechs like Marqeta to kind of issue through these small banks and earn the unregulated interchange. Do you see any changes on the horizon? I guess, more importantly, if there were any changes, how would you navigate those changes? 

Jason Gardner -- Founder and Chief Executive Officer

Yeah, maybe I'll clarify the -- yeah, I can jump in here, Tripp. Yeah, so Josh, we don't see anything changing in regards to the Durbin Amendment in the near term. We keep our eye on it. It's been in place and it was meant to protect small community banks and was meant to protect consumers.

A change like that would be pretty significant to the industry. But again, we keep an eye on this stuff. We keep an eye on a number of regulations like Reg 2 and other things going on in the industry. That being said, we have a healthy and growing business outside of the U.S., which is not driven off of interchange purely.

We have another business model that we've been successful in building. This is both in Europe, this is in Australia. This is in New Zealand. So if things begin to change around Durbin, several years out, we'll be very, very thoughtful in regards to how we change our business model so we can maintain our growth. 

Ramsey El-Assal -- Barclays Investment Bank -- Analyst

Powerful comments. Thank you.

Operator

Next question, Darrin Peller with Wolfe Research. Please go ahead.

Darrin Peller -- Wolfe Research, LLC -- Analyst

Hey, guys, congrats on first quarter out of the gate being strong on the revenue side. When we look at the growth rate of your story and we looked in your 10-Q, and I think it showed Square was up somewhere in the low 70s. Your revenue growth, obviously, overall is outperforming that large customer, showing I think what you talked about, what happened is the diversification of the business expanding from other kinds of offerings. Clearly, Buy Now Pay Later is one of those neobanks, digital banks in general.

So can you just touch for a minute again on really the differentiation on the Buy Now Pay Later spaces or maybe just moving beyond some of what you've had as your core contributors to revenues, the tech differentiation since I know Marqeta has really been known well for things like that, on-demand delivery. Buy Now Pay Later, if you could just go through how you're winning so well there. 

Jason Gardner -- Founder and Chief Executive Officer

I mean, if you look at the companies that are on platform, Affirm, Klarna, Afterpay, Sezzle, they really drive experience and they don't build one product, they build multiple products on our platform. I think, that's number one. Second is through multiple geographies. So we know how to operate inside of not only different regulatory environments, but different technology environments, different operational environments.

This is very, very complex and experience is key. We have over 11 years of experience doing this. And just like we had built out in the beginning, we talked about this on the road show. When we think about commerce disruptors, Buy Now Pay Later, or BNPL, is right there.

And our goal has always been to dominate a vertical. Go in, land and expand winners, get the experience and go ahead, operate these businesses at scale. So we do see tremendous growth. The 350% growth year over year is tremendous, and we expect to see more growth within that space.

But they simply choose Marqeta. We do smart deals. Our customers do smart deals. We focus on connecting the customer, leading innovation and delivering results associated with our platform. 

Darrin Peller -- Wolfe Research, LLC -- Analyst

Got it. All right. So it seems like that can persist. When we -- and then just an add-on question would be around the expansion from what you've been doing.

I know you touched on -- you pretty much started into credit card, I think it was really the last couple of quarters. And there's also been more progress or, I guess, incremental partnerships with banks underway. Can you just touch on the opportunity there, mainly the credit card side and where the progress has been? 

Jason Gardner -- Founder and Chief Executive Officer

Yeah, and we talked about this publicly. We've announced our relationship with Deserve. We have customers already using the platform in test, and obviously, we look to grow that pretty significantly. 50% of consumers in the U.S.

use credit. We know credit is gonna be growing outside the U.S., both in Europe and one of the largest credit card markets in the world is gonna be Asia in the coming years. We know consumers want more credit. So we thought very differently how we wanted to go and build.

We wanted a better experience for consumers and businesses. We wanted them to be able to create just like the promise of APIs and when we started our business, is to create cards that either can disrupt entire industries or solve large problems at scale. They couldn't do that with cards that were just -- look like everyone else's cards delivered by banks. So we thought the same way with credit.

What does the credit card of the future look like? And how can they go and build that? So we have a fairly large team here at Marqeta focused on that product. We believe that product in the coming quarters will expand. We'll have more to announce there, but certainly excited about credit. And then, there's a number of other areas in regards to not only issuing and processing but card products and the associated processing that goes around a lot of the tools and things certainly around program management.

So a lot to talk about in the future, lots of unwritten chapters and certainly more to come. 

Darrin Peller -- Wolfe Research, LLC -- Analyst

Thank you, and we're looking forward for more to come.

Operator

Next question, Ashwin Shirvaikar with Citi. Please go ahead.

Ashwin Shirvaikar -- Citi -- Analyst

Hi, guys. Congratulations. Good start in your life as a public company. I wanted to ask about Square.

Any new work that you do for Square, would that necessarily, I guess, fall into one of the existing contracts? And if some sort of benefit -- from Square's perspective, you already benefit from the higher thresholds already hit? And obviously, I understand client confidentiality so the second part of the question, a generic answer is fine. If you can do that, just conceptually trying to understand that. 

Jason Gardner -- Founder and Chief Executive Officer

Sure. So we have a number of products with Square. We've talked about Square is absolutely the shining example of modern card issuing. They truly understand within their DNA in regards to how to build beautiful outcomes for the customers.

Starting with the Cash Card, and second is with Square Card, which is on the merchant side. So we talked about and announced that the Square banking services represents sort of a much more fulsome offering, higher savings, lending and Square checking. And we're powering multiple parts. We're powering Square checking.

We've talked about the Square debit card accounts and routing numbers and FDIC insurance. Again, companies use our APIs to solve financial problems at scale. And obviously, we welcome that. We welcome our customers building more products on our platform.

It creates a nice horizontal approach, which is really a part of how we connect the customer and how we go to market. And we want them to continue growing. So yes, we will hit volume tiers based on their success. Certainly, Square's success is our success, and we want them to continue doing that. 

Ashwin Shirvaikar -- Citi -- Analyst

Got it. Understood. And then, as I -- sorry to deliver this, but the sort of the 3Q, 4Q commentary was not super clear with regards to the falloff, so to speak, as you're thinking of the next couple of quarters. Is it primarily caution? I mean, I get the tax piece.

Is there anything beyond the tax piece plus caution in -- and are you actually seeing, as you look at current results, the impact of Delta and things like that?

Jason Gardner -- Founder and Chief Executive Officer

Yeah, I mean, everything we have shared, I'll kick it off, Tripp, and then I'll just hand it over to you. I mean, everything we've talked about, we've factored into our guidance. We believe we are only scratching the surface here. We have $60 billion in processed volume, and there's $6 trillion in the U.S.

alone in volume on cards. So I will start with that, and I will turn it over to Tripp.

Tripp Faix -- Chief Financial Officer

Ashwin, our Q3 guidance reflects, again, strength from digital banking and BNPL verticals. We have expressed that we've seen some softness in our ODD, but they continue to be at very elevated levels on our platform. 38% year-over-year growth of net revenue is the midpoint of our guidance. And we are lapping Q3 stimulus from 2020.

And so we continue to be thoughtful. We continue to be prudent as a new public company. 

Ashwin Shirvaikar -- Citi -- Analyst

Thank you. Got it.

Operator

Next question, Bob Napoli with William Blair. Please go ahead.

Bob Napoli -- William Blair & Company -- Analyst

Thank you. Good afternoon. And let me add my congratulations to a successful IPO in your first-quarter call and strong numbers out of the gate. Jason, you have -- I mean, I think, as you've pointed out, I mean, a massive opportunity internationally, not only in the U.S.

but also internationally, which is a -- right now or last year was a small part of your business, I think maybe 2% of the business. You have a number of international customers. And so just some thoughts around the growth of international, the timing for growth, what does it take to make that a much bigger part of your business? I know you just hired a senior executive from AWS in APAC or EMEA. Maybe that's part of the strategy. 

Jason Gardner -- Founder and Chief Executive Officer

Yeah. I mean, part of the strategy in hiring Darren is his experience at AWS for over 10 years and building that into a formidable business throughout EMEA, especially, obviously, international is incredibly important. So I would start with this. Modern card issuing is certainly a global phenomenon in towns, cities, countries, continents, the ability for customers to accept payment cards, whether online or offline, is continuing to grow around the world.

And we see absolutely no change in that. In fact, we're going to see it increase because we're seeing, obviously, massive reductions in cash. This is international, specifically a huge opportunity for Marqeta in the future. Our business has been global for a long time.

We've been transacting in basically every country that you can transact in, in the world. The secular trends we've been discussing apply every major market, not just the U.S. And moving from cash to card, as I mentioned, and then from card to mobile, is really a worldwide phenomenon. So we'll enter a new market when it makes sense as a fit with our long-term strategy, support of existing customers and their expansion plans, compelling conditions to build a strong local business, hire strong talent to achieve these outcomes.

And then, our international plans are partially driven by our customers. DoorDash in Australia, Instacart in Canada, Klarna in Australia, Afterpay in the U.S., Canada and Europe and Uber in the EU. So we had talked about in the road show only 2% of our revenue actually comes from outside the U.S., but there's a $30 trillion global card issuing opportunity. And we also believe that a lot of the current volume is moving off legacy platforms to more modern platforms.

So we see growth outside the -- in the international market to be tremendous. So part of your question was, so what does it take? Every country is different. Every country has different networks, different rules, both on how money is moved. But also how you manage consumers' data, their PII, their personally identifiable information.

So as we go enter a country, we are very thoughtful. We're very prudent on how we do that. And obviously, we look to build both a great business there and being able to support our customers as they move around the world. 

Bob Napoli -- William Blair & Company -- Analyst

Thank you. Appreciate it. And then, just in the bank space itself and the J.P. Morgan, Goldman, Marcus, maybe I think -- and obviously, the neobanks, you're pretty good with Square.

I mean, there's a lot of other neobanks out there, some of which you have, but a lot of which you don't currently or -- what is the -- and there's a lot of new start-ups in that space. So just some thoughts on the large bank space and then maybe the opportunities in the neobanks outside of Square. And is there anything in your contract with Square that prohibits you from working with certain other neobanks or certain other banks? 

Jason Gardner -- Founder and Chief Executive Officer

No, there's nothing in our contracts that precludes us from growing our business. Yes. So the space, the digital banking space is a big space for Marqeta. It's something that we're very hyper focused on.

Digital banking or neobanking or whatever label you want to apply to it is massively disruptive. And we've seen both Jamie Dimon talk about the disruption coming from neobanks or digital banks. We also hear and see growth from companies like Square and the Cash App and the card that we have built and the other products that they've built on top of our platform. So we have been very purposeful as a business.

We start getting commerce disruptors. We moved to digital banks. We moved to large tech giants. And as you've mentioned, J.P.

Morgan Chase, in markets by Goldman Sachs is how we're breaking into LFIs or large financial institutions, we like to refer to them internally. Those large financial institutions is where a majority of the volume today exists. And they are looking to modernize. They're looking to move from on-prem to the cloud, to on-premise managing hardware into the cloud.

And that is a core to our business. And it's how we think about the future. We know everything is moving to the cloud. We also know that the large financial institutions want to build on new platforms.

It allows them to not only reduce total cost of ownership but allows them to build and iterate much faster and bring new products to market than -- much faster before. So I'm breaking it down into four different areas, which is commerce disruptors, digital banks, large tech giants, which we also believe a lot of large tech giants want to become financial institutions in one way, shape or form. And then, the large financial institutions or existing financial institutions. And we have very clear precise strategies on how to not only grow our existing business but win more business within those specific landscapes. 

Bob Napoli -- William Blair & Company -- Analyst

Thank you. Very helpful.

Operator

[Operator instructions] Your next question comes from Craig Moore with anonymous. Please go ahead.

Unknown speaker

Yeah, hi, thanks for taking my question. I'll keep it brief, it's just a quick one. The acquisition of Afterpay by Square, does this trigger any material adverse change clause in your contracts with either that might push a more aggressive renegotiation schedule? Thanks.

Jason Gardner -- Founder and Chief Executive Officer

Thanks, Craig. No, both Square and Afterpay, they use multiple parts of our platform to power their businesses. Also, I've noticed, Afterpay is not a top five customer in terms of volume on our platform. Therefore, we don't see this combination moving concentration risk significantly, trigger renegotiations or of the like.

I would also add, both companies also have long-term agreements with Marqeta into 2024. 

Unknown speaker

All right. That's very helpful. Thanks.

Operator

Next question, Dan Dolev with Mizuho. Please go ahead.

Dan Dolev -- Mizuho Securities -- Analyst

Hey, guys, thanks for taking my questions. So it was nice to see, I think, the yield improved by about 1 point quarter over quarter. But the key controversy has always been like what's going on with Square versus non-Square yields. Obviously, they declined dramatically in 2020.

So can you maybe help us understand a little better what is going on? What are the dynamics that have driven that and maybe parse out slightly more exactly what is going on? I appreciate it. Thank you.

Tripp Faix -- Chief Financial Officer

I'm happy to take that one. I want to clarify a few points that we've heard around non-Square portfolio as there has been probably some misinformation. Number one, the portfolio is very diverse. It includes on-demand delivery, Buy Now Pay Later, expense management, e-commerce enablement, among others.

Number two, volume from these verticals can vary quarter to quarter. We are a usage-based business. Number three, the services that we provide to our customers can be different. And the COGS structure can be different consumer versus commercial.

Certain non-Square programs underwent exponential TPV growth. I think, we highlight in the Q that the non-top five grew 265%, and that's wonderful and it's a testament to our platform. We absolutely look to grow gross profit dollar growth. And why? It's because the marginal cost of processing that incremental dollar volume for transaction is de minimis.

So I hope that clarifies a little bit around those portfolios. 

Dan Dolev -- Mizuho Securities -- Analyst

Yeah, no, it does. I mean, I was looking for some real specific data, but I understand kind of where you're coming from. I appreciate it. Thank you.

Operator

Next question, Andrew Jeffrey with Truist. Please go ahead.

Andrew Jeffrey -- Truist Securities -- Analyst

I appreciate you taking the question and look forward to getting to know you better, Jason and Tripp. One of the things I think that Marqeta has highlighted is network connectivity, and I think it's a key point of distinction. Can you talk a little bit about Discover, in particular, as it relates to BNPL and some recent transactions that are taking place in the space. And whether that's another network you'd like to add? And just generally, if you think you have globally ample network connectivity to drive your global growth ambitions? 

Jason Gardner -- Founder and Chief Executive Officer

Yeah, so I'll start. I mean, Visa and MasterCard have blanketed the globe. If you're a merchant, you want to accept payment cards, whether online or offline, we are working with Visa and MasterCard. That being said, I mean, we have actually worked with Discover for years.

Discover was our first network. They were the first network we got up and running with. They were the first network that we built not only our Marqeta card with when we first got started, but our first customers, including the Facebook card, if anyone remembers that back in the day in 2012, that was actually on the Discover Network. So to your question in regards to coverage around the world, we have it.

We don't -- we're not authorized to operate in every single country. There's a lot of work that you need to do to get supported both through Visa and MasterCard, but with the banks to operate within specific countries, we have a plan to do that. We're in 36 countries today and growing. But with regard to Discover, I mean, we've had a long-term relationship with them, but they're not necessary for us to not only grow our business but blanket the globe. 

Andrew Jeffrey -- Truist Securities -- Analyst

Appreciate it. Thank you.

Operator

I will now turn the floor over to Jason Gardner for closing remarks. 

Jason Gardner -- Founder and Chief Executive Officer

Well, thank you, everybody, that joined us on this call and for your interest in Marqeta. Have a great rest of the summer. Stay healthy, and Tripp and I look forward to speaking with you all next quarter. Thank you. 

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Stacey Finerman -- Vice President of Investor Relations

Jason Gardner -- Founder and Chief Executive Officer

Tripp Faix -- Chief Financial Officer

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Josh Beck -- KeyBanc Capital Markets -- Analyst

Ramsey El-Assal -- Barclays Investment Bank -- Analyst

Darrin Peller -- Wolfe Research, LLC -- Analyst

Ashwin Shirvaikar -- Citi -- Analyst

Bob Napoli -- William Blair & Company -- Analyst

Unknown speaker

Dan Dolev -- Mizuho Securities -- Analyst

Andrew Jeffrey -- Truist Securities -- Analyst

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