Inflation and rising interest rates have weighed on stocks this year, with the S&P 500 index down over 20% in the year's first half. During this time, markets have been ruthless to young, unprofitable companies trading at lofty valuations. Marqeta (MQ -2.92%) is one such company.

After going public in June and reaching a valuation of more than $16 billion at one point, Marqeta's stock has fallen almost 80%. The company has achieved stellar top-line growth and has long-term investors optimistic about its growth trajectory. However, the company has one big red flag that could hinder its future development. Here's what you need to know about this fintech.

People pay for a meal at a restaurant.

Image source: Getty Images.

Creating payment products for the digital age

Marqeta creates products for companies so they can keep up in the world of digital payments. Marqeta competes with legacy payments companies like Global Payments, Fiserv, and Fidelity National Information Services.

One huge advantage Marqeta has is its speed to market in creating its payment solutions. When Block Inc. (formerly known as Square) looked to issue a virtual debit card alongside its money transfer app, it turned to Marqeta, which turned around a product in six weeks, not months.  

Green flag: rapid growth on a key metric

Clients turn to Marqeta because of the flexibility of its payment products, which help drastically reduce fraud. Several companies have turned to Marqeta for payment solutions, including JPMorgan Chase, Goldman Sachs, Google, Uber, and Door Dash.

Total processing volume (TPV) measures the amount of money people spend through Marqeta's platform, net of returns and chargebacks. This is a crucial metric for Marqeta that shows how fast clients adopt its payment solutions. In the first quarter, Marqeta's TPV grew 53%. Since 2017, Marqeta's TPV has grown at a staggering 175%, compounded annually.

A chart shows Marqeta's TPV over the last five years.

Data source: Marqeta. Chart by author.

Marqeta makes money every time a transaction occurs -- similar to how Visa and Mastercard make money. Since 2019 Marqeta's net revenue has grown at 90% compounded annually and increase 54% in the first quarter this year.  Marqeta has achieved an impressive rate of growth, but there is one red flag you should know about before jumping into this fintech.

Red flag: heavy reliance on a single customer

Marqeta heavily relies on Block for most of its revenue, posing a significant risk to Marqeta's business. Last year, Block accounted for 73% of Marqeta's revenue, which dropped to 66% in the first quarter.

Marqeta faces competition from those legacy platforms mentioned above and younger upstarts SoFi Technologies, Adyen, and Stripe. Marqeta's agreements with Block end in 2024, but it could possibly cancel its contract and turn to one of Marqeta's competitors, which would devastate Marqeta's business.

Marqeta is working on diversifying its customer base, and seeing Block's share of its total revenue decrease is a promising sign. However, it still has a lot of work to do to reduce this customer concentration risk.

Investing takeaway

Marqeta has gotten beaten up this past year, and the fintech has failed to turn a profit. Last year Marqeta had a net loss of $164 million and posted another loss of $61 million in the first quarter. Much of the widening loss is attributable to stock-based compensation and will likely remain significant, with $450 million to be recognized in the next three to four years.

The company has done an excellent job of increasing its TPV, but it has to work to diversify its revenue, so it's not so reliant on Block. Although I think the company has the potential for rapid growth, the stock is best suited for investors with a long time horizon and a high-risk tolerance who are willing to hold this fintech, which could struggle as the economy likely slows into next year.