On Wednesday, June 9, Marqeta made its trading debut on the Nasdaq under the ticker symbol MQ. For many, the IPO was the exclamation point at the end of an exciting journey for the true fintech disruptor. Its prelude came in January when Marqeta announced it would be partnering with none other than Goldman Sachs backed Marcus digital banking platform. Given the current environment, where lofty valuations are assigned to almost any asset brandishing the fintech banner, whether in the public markets or private, Marqeta’s seemingly instant success, as manifested by its consolidated trading above its $27 per share IPO price, seems rather unremarkable. However, upon digging deeper into the asset itself, and the innovative capabilities of its proprietary processing platform to leverage just-in-time (“JIT”) payments, it’s not hard to conclude that this fintech has got room to run, and in fact, may waltz itself right into the pantheon of fintech Gods like Paypal and Square.
Historically, one of the major pain points for businesses seeking to implement an expense management program for staff and employees has been the lengthy – often up to a year – application and approval process for securing an issuing bank as a partner to back and facilitate it. Companies operating large fleets have needed an expense management system to monitor workers’ fuel and travel costs. Financial services firms and technology companies have also needed a similar system. Specialty payments processing and issuing companies like WEX very capably handled these needs – and still do. But the way we work has changed. In the wake of the pandemic, the nature of work has shifted dramatically to a more virtual environment. From the way we communicate to the way we transact, we continue to advance further into the non-physical realm of commerce, and there exists no evidence to suggest a reversion.
Another traditional pain-point for businesses seeking to implement expense management programs has been the economics. The cost to SMEs to implement an expense management program was prohibitive – it simply didn’t make financial sense. Today, highly scalable, robust business management and commerce solutions delivered via software are making what used to be exclusively a “large” company expense management solution economically viable for smaller firms.
So, where there existed a need, there also existed an opportunity, and Marqeta has seized it – big time.
At the heart of Marqeta’s disruptive platform lie three elegant solutions to the historical pain points described above: proprietary processing platform, open APIs, and JIT payments.
In 2014, after a failed business venture with Facebook, Marqeta CEO, Jason Gardner decided to build his own processing platform rather than building on top of unwieldy, legacy processors like First Data (now Fiserv). The upside to building a proprietary processor/switch from scratch was the ability to architect the software infrastructure to allow developers to API directly to the new platform, including developers of other fintechs, and more importantly, the businesses that Marqeta would be servicing. It also created the underpinnings of Marqeta’s dynamic payments authorization feature – custom authorization parameters that each client could create, manage, and control – which is powered by the new processing platform’s ability to capture a host of transactional metadata via parsing and interpreting the original authorization signal in real-time at the time of purchase.
The combination of the new processing platform and the open API for developers lay the groundwork for Marqeta’s most formidable technology: JITs payments. For anyone with a background in financial technology, and payments, in particular, this solution to traditional card issuance and payments processing is unquestionably disruptive – it takes the issuing bank out of the transactional scheme. By allowing businesses to perform real-time, auto-funding to virtual (or physical) cards from their funding accounts, they’ve created an entirely new paradigm for payments processing – one that’s seamless, instant, and top of that, executed under the auspices of the client’s authorization parameters.
Further, the mechanics of Marqeta’s authorization process – not having to authorize against a line of credit of an issuing bank – precludes company expense cardholders from spending any more than has been authorized against the real-time balance in the company’s dedicated funding account, all but eliminating any margin for fraudulent spending.
Some may argue that Marqeta’s competitive advantage over its industry peers doesn’t rise to the level of an economic moat. But I flatly disagree. One of the closest in-kind competitors to Marqeta is PEX, which offers many of the innovative technologies that Marqeta does, except that PEX is dependent on the legacy payments infrastructure provided by its issuing banks: Fifth Third and The Bancorp Bank. This ultimately precludes PEX from offering the same level of feature-rich solutions that lend themselves to Marqeta’s open API platform, and nothing comparable to Marqeta’s dynamic authorization capabilities.
Marqeta is a true disruptor in the payments processing space and one to be watched closely. While company-based expense management solutions offered through card programs are nothing new, Marqeta’s technology is revolutionary. When reading the fine print of its competitors’ offerings, there’s nothing else out there that’s comparable. Kudos to the management team for its persistence, vision, and execution, and kudos to the investment bankers with an eye for true fintech who brought them public. I suspect the early believers will be pirouetting – gettin’ JIT-ty wit it – all the way to the bank. And for Marqeta’s competition, well, in the words of the inimitable Will Smith:
“You wanna ball with the kid? Watch your step, you might fall trying to do what I did.”