Investors of payment technology company Marqeta (MQ 1.89%) have had a rough time. Its share prices are down more than 60% since the company went public last summer.
However, long-term investors have a reason for optimism. The company recently announced an expansion of its partnership with buy now, pay later company Klarna.
Investors should know about the big-picture implications of this partnership, as they underline how Marqeta can still be an excellent long-term investment.
What does Marqeta do?
Marqeta is a modern card issuing company; it's an application programming interface (API) software that lets customers build highly custom payment technologies.
Image source: Getty Images.
Traditional credit cards approve you for a set amount of money, then keep a ledger of where you spend and how much. But more sophisticated applications have emerged over the past decade. For example, imagine you order groceries through Instacart. The shopper gathering your groceries uses a payment card to buy your order at the store. Marqeta's technology controls where the payment card is authorized to be used and doesn't put money on the card until the point of sale. This isn't possible with traditional credit cards.
Marqeta's technology powers a host of fintech and other payment-based companies, including Block, Uber Technologies, DoorDash, and Affirm.
Powering the Klarna card
Marqeta recently announced that it's expanding its relationship with Klarna, which it's supported since 2018, to power the Klarna card, a physical payment card that users will link to their bank account to make cash purchases but that will come with the ability to split transactions into four interest-free installments.
This is a direct competitor to Affirm's upcoming Debit+ card, which Marqeta also powers. The Klarna partnership is significant because Klarna has 25 million users in the United States, where shoppers could implement the Marqeta-powered product.
Marqeta takes a small percentage of each transaction its technology powers, so higher volumes will directly benefit revenue growth. Though it may not show up immediately in Marqeta's results, the arrival of physical payment cards with buy now, pay later capabilities is another reminder that the age-old question, "debit or credit?" could eventually become obsolete.
Long-term opportunity
Virtual cards aren't new; Marqeta began its relationship with Klarna in 2018 by supporting virtual payments in the U.S. Klarna began launching virtual payment cards in Europe at the end of 2021, so perhaps a physical card will eventually launch outside of the United States, too. Klarna's a global company with a total of 147 million users.
Investors should pay attention to the traction that new payment technologies are getting. These buy now, pay later cards could emerge as a threat to the legacy credit card companies if they find their way into enough shoppers' wallets. According to research company Precedence Research, the buy now, pay later industry could grow to $3.2 trillion by 2030.
So far, virtually all of this has taken place through online shopping, but much of what a consumer spends still happens at payment terminals, and products like the Klarna card could open up whole new avenues of growth for the industry.
Such a sizable addressable market leaves room for multiple winners. Still, Marqeta's role as the plumbing for industry's major competitors, including Affirm, Klarna, Sezzle, and Block's Afterpay, gives investors potential exposure to the broader upside of the industry.
