In the last decade, we've seen an explosion of tech-driven companies disrupting legacy industries. New businesses like Uber Technologies, Square, and Instacart have taken the world by storm.
With these tech disruptors taking off, the payment card industry needed to keep up. There has been little innovation in payment card issuance from the legacy institutions that have dominated the industry for so long, and the founders of Marqeta saw this as an opportunity.
Last week, the payments solutions company filed to go public. In that filing, investors got a better idea of the company and its actual financial performance in recent years. Here's what we learned.
Revolutionizing payments for the technological age
Marqeta was founded in 2009 to revolutionize payments. The company spent that past decade building technological infrastructure that allows companies to quickly and easily create their own payment cards -- which can be physical, virtual, or tokenized -- without the need for issuing banks and card networks. This has allowed companies to create customizable payment cards quickly and deploy those cards faster than ever before.
Image source: Getty Images.
What Marqeta does especially well is work with larger institutions to help them stay ahead of competitors in their space. It works with younger companies like Uber and Square, but also with long-standing institutions like Goldman Sachs.
Marqeta helps its clients build card products at a speed and simplicity that is unparalleled, and its clients pay up for this service. Marqeta has several built-in features that make its cards customizable, such as dynamic spend control, which gives companies control over how much is spent and where, and can also cut down on fraud.
An attractive business model drives strong growth
Marqeta makes its revenue on a per-transaction basis, a model similar to Visa and Mastercard.
Last year, the company processed 1.6 billion transactions on its platform across the world and had 57 million active cards at the end of 2020. The company's usage-based model is based on its processing volume, with most of its revenue come from interchange fees from card transactions. Marqeta also makes money from processing services, ATM fees, and fraud monitoring.
In Marqeta's S-1 filing, we learned that the company brought in $290 million in revenue last year, doubling the amount from the year prior. It also posted a net loss of $47 million, which was an improvement on its $59 million loss from 2019.
For Marqeta, its measuring stick for growth is total processed volume. In 2020, the company processed $60 billion in volume, a drastic increase from its $21.7 billion processed in 2019. This growth stayed strong in the first quarter of this year, as the company processed $24 billion in volume, up 167% from the same quarter last year.
Where can Marqeta go from here?
Marqeta shares have been selling in the secondary market for about $33 to $35 per share, Larry Albukerk, managing partner at EB Exchange, told CNBC. Based on the number of shares to be issued in the prospectus, Marqeta's valuation is estimated to be somewhere between $16 billion and $17 billion.
Marqeta's growth story could be a good one. The shift to digital payments is one of the biggest drivers of growth for the company, and the current trajectory of trends looks good for the company. According to Bain & Co., the percentage of digital transaction volumes in 2025 will increase from 57% to 67%.
The timing of the coronavirus pandemic has accelerated a trend toward the adoption of digital payments as consumers are more accepting of digital payments technology. In response, legacy institutions were forced to adapt to digital changes, and they looked to Marqeta to create their payments products.
However, I think Marqeta's real advantage is the strength of its network of clients. The company works with names that have exploded in value in the last year, including Square, Uber, Affirm, Klarna, and DoorDash. As those companies continue to grow, Marqeta will benefit from increasing transaction volumes.
The company is positioned well to provide top-notch financial infrastructure for payments in the digital age. At its current growth trajectory, we could be seeing Marqeta among the likes of Visa and Mastercard one day.
