Item 1. Business
ITEM 1. BUSINESS
Our Business
Marqeta created modern card issuing, and we believe modern card issuing is at the heart of today’s digital economy.
Marqeta’s modern card issuing platform empowers our customers to create customized and innovative payment cards, giving them the ability to build more configurable and flexible payment experiences. Marqeta’s open APIs provide instant access to highly scalable, cloud-based payment infrastructure that enable customers to launch and manage their own card programs, issue cards, and authorize and settle payment transactions.
The following represent examples of modern card issuing:
• When a company issues an expense card to its employees, modern card issuing allows for customizable spend controls depending on the employee and employer’s needs.
• When you receive money from your friend through a mobile payment app, modern card issuing helps move the funds to your debit card, making it instantly available to you to make purchases.
• When you buy a big screen TV and pay for it in installments using a buy now pay later provider, modern card issuing helps move money to an associated payment card that a buy now pay later provider uses to seamlessly pay the merchant.
Marqeta works on its customers’ behalf with Card Networks and Issuing Banks to issue cards, authorize transactions, and communicate with settlement entities. Our platform, powered by open APIs, enables businesses to develop modern, frictionless payment card experiences for consumer and commercial use cases.
Our modern architecture allows for flexibility, a high degree of configurability, and accelerated product development, democratizing access to card issuing technology. It also enables us to rapidly expand our platform’s functionality, creating added value for our customers.
Marqeta is the first company to offer a platform for modern card issuing and transaction processing and we believe also the first to market with multiple issuing and processing innovations, including the first open APIs, JIT Funding, and Tokenization as a Service. Marqeta’s modern card issuing platform supports prepaid, debit, and credit products. Integrated with major global and local Card Networks, modern card issuing enables card issuers to build payment solutions to their specifications and launch them globally.
Our platform powers mission-critical experiences for our customers, leading to strong relationships over time as we extend their reach both from a product and geographic perspective. We become technically integrated within their products and solutions, operationally integrated as customers develop core processes around our tools and platform, and culturally integrated as our partnerships deepen over time.
The strength and durability of our customer relationships are evidenced by our year-over-year net revenue growth of 45% and our dollar-based net revenue retention of 144% for the year ended December 31, 2022. Our dollar-based net revenue retention was over 175% and 200% for the years ended December 31, 2021 and 2020, respectively. In the years ended December 31, 2022, 2021 and 2020, the Marqeta platform processed TPV of $166.3 billion, $111.1 billion and $60.1 billion, respectively, which reflected year-over-year growth of 50% and 85%, respectively.
Our products meet the card issuing and transaction processing needs of commerce disruptors, financial technology companies, companies offering new embedded finance solutions, and large financial institutions alike. Marqeta has already emerged as a card issuing platform category leader in many disruptive verticals, including on-demand services, lending (including buy now pay later, or BNPL, financing), expense management, disbursements, online marketplaces, and digital banking. Our platform is sought out by customers to improve their existing offerings, create new revenue streams, increase engagement with their customers and end users and stay competitive with technology-focused new market entrants.
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As we expand our use cases, product offerings, and global footprint, we attract new industry innovators and help existing customers expand into new verticals, programs, markets, and geographies. Our customers consistently tell us that our ability to work at speed, simplify the complex, and envision their end users’ experience helps them focus on what they do best— building innovative products and serving their customers . We believe our culture of customer-centricity, innovation, teamwork, and clarity of mission is why customers trust us with their mission-critical payments needs and continue to grow and expand with us.
We have grown and scaled rapidly in recent periods. Our total net revenue was $748.2 million, $517.2 million, and $290.3 million for the years ended December 31, 2022, 2021 and 2020, respectively, an increase of 45% and 78% from the prior years, respectively. We incurred net losses of $184.8 million, $163.9 million, and $47.7 million for the years ended December 31, 2022, 2021 and 2020, respectively.
The Payments Ecosystem
A complex ecosystem of Issuing Banks, Acquiring Banks, Acquirer Processors, Issuer Processors, and the Card Networks that facilitate the exchange of information and funds underpins global payment card purchase transactions.
Legacy Payments Ecosystem
The legacy payments ecosystem has historically been inflexible and complicated, which makes launching new card programs and supporting cutting-edge use cases difficult and time consuming. In the legacy payments ecosystem, a consumer uses a credit, debit, or prepaid card from a card issuer to make a purchase at a merchant and the merchant contracts with a financial institution to hold the funds from the purchase.
In the legacy payments ecosystem, the card issuer must contract with an Issuing Bank, a financial institution that issues a payment card (credit, debit, or prepaid) on behalf of the card issuer, or, alternatively, on its own behalf. The card issuer must also contract with an Issuer Processor to provide the technology platform, ledger, and infrastructure to support a card issuer and connect with a Card Network to facilitate payment transactions. The Card Networks provide the infrastructure for settlement and card payment information that flows between the Issuer Processor and the Acquirer Processor that facilitates the flow of card payment information through Card Networks to the Issuing Bank.
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Modern Payments Ecosystem
Our modern infrastructure allows for significant innovation in the payments ecosystem. It enables a new class of card issuers to emerge by simplifying and democratizing the card issuing experience. It expands the issuing medium beyond physical cards to keep pace with the demands of digital commerce and mobile wallets, increasing regulatory and security requirements, and cross-border capabilities. It gives developers highly configurable controls that enable them to provide a customized solution to their business and customer needs. It operates on an extensible cloud infrastructure that works globally and enables scale and simplicity even as card issuer, merchant, and consumer demands become increasingly complex.
A modern payments ecosystem puts innovation, accessibility, flexibility, control, and scale into the hands of card issuers by delivering all of these benefits in one easy-to-use platform. This type of platform solution powers the growth of new verticals and new card issuers and enables innovation for large financial institutions who are looking to expand their products and use cases to remain competitive in an increasingly digitized world.
Our Platform and Products
Marqeta provides a single, global, cloud-based, open API platform for modern card issuing and transaction processing. The Marqeta platform provides next generation payment experiences for tech-driven, developer-led companies and is well positioned to address the payment needs of financial technology companies, companies offering new embedded finance solutions, and large financial institutions.
Our Platform
Marqeta’s modern card issuing platform was built by developers for developers. Our customers are able to use our simple, data-rich, and accessible platform to build and rapidly scale their card programs, with extensive control and configurability, and with the highest standards of reliability and security. Our platform is designed to reduce complexity for card issuers, enabling a full spectrum of card issuing and transaction processing services in a single solution.
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Our platform has a number of key attributes, including:
Accessible: We democratize key payment capabilities to enable any business to start issuing physical, virtual, or tokenized payment cards that are configured to its individual business needs. New customers do not need to have deep payment expertise to issue cards and process transactions.
Simple: Our platform makes payment transactions simple by working behind the scenes to translate the complex into intuitive and developer-friendly user experiences. We provide direct integrations with the Card Networks, enabling developers to use Marqeta’s single unified platform for all of their payments integrations.
Scalable: The Marqeta platform is highly agile and scalable, allowing our customers to launch and grow card programs with speed and confidence. As a global platform built on a single codebase to support our customers worldwide, we have a build-once, deploy-anywhere model, offering seamless integration with global and local Card Networks.
Configurable: The Marqeta platform is highly configurable and is able to serve use cases previously unaddressed by legacy systems, such as expense management. Our platform’s configurability significantly expands the categories of businesses that can begin issuing their own cards to solve complex payment needs.
Innovative: Marqeta is a hub for innovation. Instant card issuance, provisioning to digital wallets, JIT Funding, dynamic spend controls, RiskControl, and the Marqeta for Banking product suite enable our customers to operate with speed and control.
Trusted: Our platform is trusted by financial technology companies, companies offering new embedded finance solutions, and large financial institutions to perform at scale. We comply with applicable obligations under the Payment Card Industry Data Security Standard, or PCI DSS, and provide a trusted environment for card issuing and payment processing with security, transparency, and real-time information.
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Our Products
Marqeta’s innovative products are developed with deep domain expertise and a customer-first mindset to launch, scale, and manage card programs. Depending on a customer’s desired level of control and responsibility, Marqeta can work with companies in a range of different configurations:
• Managed By Marqeta : With Managed By Marqeta, or MxM, Marqeta provides an Issuing Bank partner to act as the Bank Identification Number, or BIN, sponsor for the customer’s card program, manages the customer’s card program on behalf of the Issuing Bank, and provides a full-range of services including configuring many of the critical resources required by a customer’s production environment. In addition to providing customer access to the Marqeta dashboard via our APIs and payment processing, Marqeta also manages a number of the primary tasks related to launching a card program, such as defining and managing the program, operating the program and managing certain profitability components, and managing compliance with applicable regulations, Issuing Bank and Card Network rules. Also available to our MxM customers are a variety of managed services, including dispute management, fraud scoring, card fulfillment, and cardholder support services.
• Powered By Marqeta : With Powered By Marqeta, or PxM, Marqeta also provides customers access to the Marqeta dashboard via our APIs, provides payment processing, and assists with certain configuration elements that enable the customer to use the platform independently. Unlike under our Managed By Marqeta card programs, our PxM customers are responsible for other elements of the card program, including defining and managing the program with the Card Networks and Issuing Bank as well as managing compliance with applicable regulations, Issuing Bank and Card Network rules.
Given the modularity of the Marqeta platform, certain customers can also opt to incorporate elements of MxM into their PxM card program to create a custom “Powered By Plus” solution.
Marqeta Issuing
We enable our customers to issue physical, virtual, and tokenized cards across a deep and varied customer base. We have significant industry experience supporting card programs of multiple types and sizes. We offer fulfillment services, enabling our customers to optimize their card programs by managing users, fulfillment, and card transactions through the Marqeta platform. We are also at the forefront of payments innovation, with features such as the provision of a tokenized card into digital wallets.
We offer a number of core card issuing services and functionalities:
Custom card functionality: Our Issuing Bank relationships and direct integrations with the Card Networks enable our customers to efficiently launch, manage, and grow card programs that are customized to their specific business needs without needing to build those complex relationships or integrations themselves. We provide industry-leading user experience while minimizing fraud.
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Configure cards with open APIs: Customers can easily define card attributes for where and how a card is used, such as restrict or accept use online or in certain countries, currencies, postal codes, and/or merchant categories.
Build, test, and launch cards: Developers can simultaneously create card products and set up funding sources, cardholders, and cards through simulations available in their own private and secure Marqeta sandbox, enabling them to test and validate their programs easily and quickly before launch.
Securely embed cards into apps: Customers using our platform have the ability to securely embed sensitive card data into mobile apps using customizable widgets or the Marqeta JavaScript library; this has the added benefit of dramatically reducing the workload necessary to comply with PCI DSS requirements.
Customize cards: Marqeta’s customers control the design and feel of their physical and virtual cards, which helps our customers establish strong brand identity for their business. Customers choosing physical cards can also customize security features, including magnetic stripe, near field communication, and EMV-chip enabled.
Marqeta Processing
Our platform can process transactions with control and speed for our customers, leveraging certain of our core competencies:
Secure authentication: Marqeta’s modern platform provides robust, secure authentication tools. A variety of authentication methods are available to authenticate the card user, including PIN, address verification, card verification value, 3D Secure and EMV chip.
Configurable spend controls: Customers can reduce fraud by limiting where and how their end users can transact. Through the Marqeta platform, our customers can deploy fully tailored spending limits by merchant, merchant category, merchant group, amount, user, user group, frequency of use, time of use, and start/end times, among many other inputs.
JIT Funding: Utilizing Marqeta’s industry-first JIT Funding functionality, each card maintains a zero-amount balance until the card is used and approved. Upon approval, Marqeta automatically moves funds from an identified funding source into the appropriate account. The following illustration reflects the workflow once a cardholder attempts to make a payment at a merchant using an account configured to use JIT Funding:
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Real-time notifications: Through our platform, customers can implement our unique webhooks or push notification capabilities to receive real-time updates as transactions are processed on the Marqeta platform. Turning on these notifications empowers our customers to provide real-time, meaningful messages to their end users. Our platform also supports card events, dispute events, and transaction events.
Accelerates reconciliations: Our platform saves our customers both time and money. By injecting custom data fields into each transaction, customers can optimize and accelerate reconciliations by matching the order and ledger system records automatically.
Marqeta Applications
The Marqeta platform is a cloud-native, highly configurable API-first platform that enables customers to create seamless and customized digital experiences for their users without many of the limitations and compromises that legacy platforms have imposed in the past. Customers can leverage applications that cover the entire payments lifecycle, including the developer sandbox, card management, transaction monitoring, and case management. These applications help ensure their card programs are as successful as possible.
Marqeta applications allow customers to:
Utilize developer tools: Developers have access to Marqeta’s wealth of tools, including a private sandbox, APIs, software development kits, widgets, and documentation to customize, test, and issue their cards and programs. With multiple API endpoints, developers can configure spend controls, simulate transaction processing, and quickly roll out new features with confidence.
Streamline program administration: Our platform is transforming how our customers can approach card program administration. We offer tools to manage program funds, monitor cardholder balances, report lost or stolen cards, and view a multitude of white-labeled reports, all through a single application.
Reduce and mitigate fraud: We offer unique functionality to help customers combat fraud. Using Marqeta’s powerful authorization and decisioning engine, customers can configure rules using a variety of inputs that approve or decline transactions based on real-time and dynamic parameters. This along with our customer identification program, or CIP, verification, 3D Secure, and dispute management services provide a multi-layer security framework, helping our customers detect and prevent unauthorized, fraudulent activities, while empowering them to create frictionless experiences for their customers.
Manage cases and resolve disputes: Marqeta’s case management API endpoints help our customers to optimize the entire dispute process. This includes submitting disputes, receiving statements, participating in arbitration, all while receiving live status updates via push notifications. Our holistic solution helps to simplify case management while enabling an optimized experience for the end user.
Simplify compliance and reporting: With our platform, customers can monitor and review reports for potential violations and leverage data and insights to aid in anti-money-laundering, or AML, transaction monitoring. Our solutions are certified as compliant with PCI DSS and 3D Secure, among others. Our bank-grade encryption safeguards payment card data, including personally identifiable information.
Analyze data intelligence: We dissect and analyze transaction data. Customers can monitor balances, authorizations, and settlements over time to track every aspect of their card program. Customers can see chargebacks, declined transactions, and card activities on a regular basis, while data can be reported on a daily, weekly, or monthly cadence.
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New Products Released in 2022
Marqeta remains focused on the development of new products, features, and use cases to serve our current and future customers’ needs.
• In April 2022, we introduced our RiskControl solution providing our customers with comprehensive risk, compliance, and fraud management capabilities using real-time decisioning to develop transaction controls. RiskControl also includes newly enhanced versions of our CIP verification and dispute management services.
• In June 2022, we expanded our credit platform with a new, intuitive dashboard that enables customers to launch cards more quickly and simply. We also introduced over 40 new credit APIs that enable customers flexibility and control to design, test, and launch differentiated credit card experiences.
• In October 2022, we introduced Marqeta for Banking, an expansion of modern card issuing and an extension of our platform that provides our customers with a suite of bank account and money movement features offered through Marqeta’s Issuing Bank partners, including demand deposit accounts, direct deposit with early pay, ACH, cash loads, and fee-free ATMs, bill pay, and instant funding capabilities.
Our Business Model
Our modern, cloud-based, open API platform delivers card issuing and transaction processing services for global money movement, tailored to the needs of developers, technical product managers, and entrepreneurs at innovative companies. During the year ended December 31, 2022, we processed approximately 4.1 billion transactions on our platform across the globe, up 51% from the 2.7 billion transactions processed on our platform during the year ended December 31, 2021.
We employ a usage-based model, based on processing volume and transactions, that aligns our interests with those of our customers. We generate the majority of our revenue based on the volume of transactions processed through our platform. For MxM relationships, we receive Interchange Fees for processing our customers’ card transactions through our platform and we share with our customers a majority of the Interchange Fees generated through our platform, referred to as “Revenue Share.” For PxM relationships, we do not receive Interchange Fees and we price our services on either a percentage of processing volume or on a fee per transaction basis. While we generate greater revenue from our MxM services, the processing volume generated by MxM and PxM services is similar. Further, our cost to deliver PxM services is lower because we do not pay Issuing Bank and Card Network fees. Therefore, the gross profit as a percentage of TPV can be similar for MxM and PxM. These dynamics may fluctuate with different “Powered By Plus” solutions, where PxM customers can incorporate certain MxM services into their PxM card program. Additionally, we generate revenue from other processing and managed services, including platform access, ATM processing, fraud monitoring, dispute management, and tokenization services.
Interchange Fees are transaction- and volume-based fees paid by the Acquiring Bank to the Issuing Bank that issued the payment card used to purchase goods or services from a merchant. In accordance with our agreements with Issuing Banks that support our MxM services, we receive 100% of the Interchange Fees for processing our customers’ card transactions and then provide Revenue Share payments to our MxM customers.
As MxM customers increase processing volumes on our platform, they may earn an increased portion of Interchange Fees. Our gross margin percentage may decrease as a result of this dynamic. However, we remain strategically focused on growing incremental gross profit dollars and have the ability to offset margin declines with better pricing that we achieve with Issuing Banks and Card Networks as well as providing other processing and managed services.
As we strive to democratize payments and simplify card issuing and transaction processing, our strategic partnerships and direct integrations with Issuing Banks and Card Networks continue to be important to our customer value proposition.
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Our Growth Strategy
We have established a strong competitive moat, predicated on our scale, customer relationships, and the technological complexities that we have managed to simplify over time, while remaining agile, extensible, and innovative. We believe it would require a significant commitment of time and resources for a potential competitor to imitate our platform.
We also believe that we have and continue to build significant technical know-how and card issuing and transaction processing expertise so that potential competitors cannot easily replicate our business. We believe these structural advantages, and our culture and values-driven business, should enable us to extend our lead over time.
Our market opportunity is tremendous, and we intend to expand our addressable market and increase our revenue by pursuing the following strategies:
Adding New Customers. While we had over 200 customers as of December 31, 2022, we intend to solidify our reach in existing categories and expand to new use cases and industry verticals. Our sales teams focus on attracting financial technology companies and companies offering new embedded finance solutions. We also intend to expand our relationships with large financial institutions to help them compete in the digitized world through our industry-leading solutions. We intend to attract and engage new customers through customer referrals from existing customers, marketing campaigns, outbound sales calls, and key industry conferences and tradeshows. We will also look for opportunities to grow through strategic partnerships and acquisitions.
Expanding and Growing Our Relationships With Our Existing Customers. Our current customers include some of today’s leading financial technology companies, companies offering new embedded finance solutions, and large financial institutions. Our usage-based model, based on processing volume and transactions, aligns our interests with those of our customers. We participate in our customers’ growth alongside them because as our customers’ businesses scale and their processing volumes increase, so does our revenue.
Broadening Our Global Reach. As of December 31, 2022, we were certified to operate in 40 countries globally and intend to continue our international expansion in the future to meet customer needs. Because our customers employ digital models and often look to launch in new markets, we are constantly assessing how we can extend our platform’s reach. We believe it is a significant competitive advantage to offer a consistent platform experience to all customers, no matter where they originate or how they expand.
Expanding Our Ecosystem, Product Offering and Partnership Network. Our closely integrated relationships with our customers and deep insight into our customers’ transaction data allows us to anticipate our customers’ product needs and emerging market opportunities. Our modern card issuing platform and APIs allow us to rapidly develop new products, features, and use cases to serve our current and future customers. We will continue to invest in both new product development and platform enhancements to create increased stability, greater flexibility, and data-driven decision-making, all within increasingly shorter timeframes. We initially targeted card issuing through a modern and disruptive lens, and we believe we can leverage our platform to replicate our success in other areas of the payments ecosystem. Further, we will continue to invest in operational support to maintain service levels expected by our customers. We believe these investments in product development and operational efficiency will lead to long-term growth and profitability. A robust ecosystem of partners is also crucial to our ability to embed our technology into a greater range of use cases. We intend to continue identifying and nurturing our relationships with Issuing Banks, Card Networks, and other partners to continue building on our existing use cases.
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Our Customers
Our modern card issuing platform powers mission-critical experiences for our customers, leading to strong relationships over time as we extend their reach both from a product and geographic perspective.
Agreements with Large Customers
Block
On April 19, 2016, we entered into a master services agreement with Block, Inc., formerly known as Square, Inc., subsequently amended, or the Block Agreement, which includes agreements that provide for the commercial terms of our relationship with Block. Pursuant to the terms of the Block Agreement, we have agreed to manage Block’s Cash App, Square Card, and Square Card Canada card issuing programs for Block. On January 31, 2022, Block completed its acquisition of our customer, Afterpay Limited. We have a separate agreement with Afterpay that provides for the commercial terms of our relationship, however, we now aggregate Afterpay as part of our Block business.
Under the agreements to manage these card programs, we agree to share a portion of the net interchange revenue that we earn from processing the volume of these programs. The Revenue Share provisions include increased rates of Revenue Share when processing volumes reach specified volume tiers. We also generate revenue from other processing services under the agreements.
In addition, on March 13, 2021, and as specified in the Block Agreement, we granted Block a warrant to purchase up to 1,100,000 shares of our common stock at an exercise price of $0.01 per share, which is exercisable upon attaining certain milestones relating to Block’s creation of a specified percentage of new cardholders on our platform each year over a three-year period. The current term of our agreement with Block for Cash App expires in March 2024, the current term of our agreements with Block for Square Card and Square Card Canada, respectively, expire in December 2024, and each agreement automatically renews thereafter for successive one-year periods, unless terminated earlier by either party. Either we or Block may terminate the Block Agreement under certain specified circumstances, including upon a material breach. The Block Agreement also provides for certain other terms, including representations and warranties of the parties, intellectual property rights, data ownership and security, limitations on liability, confidentiality and indemnification rights, and other covenants.
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Our Relationships with Issuing Banks and Card Networks
Our contractual relationships with Issuing Banks and Card Networks contribute to Marqeta’s ability to create and manage customized card programs for our customers. We intend to expand and deepen our relationships with Issuing Banks and Card Networks.
Relationship and Agreements with Issuing Banks
We partner with Issuing Banks to provide services for our MxM solution that include card issuance, Card Network sponsorship, and creating deposit accounts used to settle our customers’ transactions because we do not have regulatory authority to perform these activities ourselves. Our contracts with Issuing Banks entitle Marqeta to all of the Interchange Fees generated from our customers’ card programs, which we then share with our MxM customers through Revenue Share payments, and obligate us to pay all Card Network fees associated with our customers’ card transactions.
While an Issuing Bank ultimately approves each card program, Marqeta is able to configure the program design, negotiate key program terms, and select the Issuing Bank. Marqeta actively “shops” the potential card program to various Issuing Banks to identify the most appropriate bank based on the customer’s needs. We pay volume-based and transaction-based fees to the Issuing Banks. The fees are typically structured based on volume tiers; as our processing volumes grow, these fees as a percentage of processing volume decline. These fees are reflected in our costs of revenue.
When our customers engage us for MxM services, we provide an Issuing Bank to act as the BIN sponsor for the customer’s card program and are responsible for managing compliance with the Issuing Bank’s requirements and Card Network rules.
When our customers engage us for PxM services, we do not manage the customer’s relationships with the Issuing Banks and Card Networks and the customer is responsible for managing compliance with the Issuing Bank’s requirements and Card Network rules.
Sutton Bank
On April 1, 2016, we entered into a prepaid card program manager agreement with Sutton Bank. Under the terms of the agreement, as amended, Sutton Bank settles payment transactions for us and provides card and other related services to us, including the issuance of cards for approved card programs. The agreement provides that we pay Sutton Bank a fee based on a percentage of the value of transactions processed. Under this agreement we are entitled to receive 100% of the Interchange Fees for processing our customers’ card transactions. Under certain circumstances, the agreement also requires us to pay termination fees, including fees and costs to Sutton Bank, if we terminate the agreement before the end of its term or any automatic renewal term. The current term of the agreement expires in 2028, after which it automatically renews on the same terms and conditions for a two-year renewal term, unless either party provides written notice of its intent not to renew at least 180 days prior to the expiration of the then-current term. Either we or Sutton Bank may terminate the agreement under certain specified circumstances, including if the other party commits a material breach that is not cured within 30 days.
Agreements with Card Networks
The Card Networks oversee their worldwide payment networks, through which debit, credit, and prepaid card payments are authorized, processed, and settled between an Issuing Bank and an Acquiring Bank. Card Networks also set the Interchange Fee rates that the Acquiring Bank routes through the Card Network to the Issuing Bank. We currently partner with a number of Card Networks, including Visa, Mastercard, and PULSE, which is part of the Discover Global Network, and a number of PIN networks, to process our customers’ transactions on our platform.
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Marqeta arranges for our MxM customers to use one or more of the available Card Networks, and we include the standard Card Network fees in the pricing arrangements with our MxM customers. We pay these standard fees to the Card Networks directly, or indirectly through reimbursement of these fees upon the settlement of card transactions by the Issuing Banks. These fees are reflected in our costs of revenue. Given our ability to direct processing volume to specific Card Networks, we are able to negotiate certain incentive rebates that effectively reduce the overall Card Network fees. With the scale of the transactions we process on behalf of our customers, we believe we can continue to negotiate favorable incentive rebates. However, if these fees increase, our gross margins will decrease. Additionally, we partner with Card Networks to develop our processing capabilities in international locations as we expand globally. We intend to expand and deepen our relationships with Card Networks.
Our relationships with the Card Networks allow us to connect our platform directly to the Card Networks, which allows for transaction authorization (or decline) messages to be sent electronically to and from our platform. This connection provides for virtually instant notification of our customers’ card transactions and allows for a quick response to the authorization request. Once an authorization approval response has been sent by Marqeta to the Card Network (based on parameters established by the applicable customer), the transaction is able to occur on the Card Network’s secure network.
Mastercard
In 2020, we entered into a strategic relationship agreement with Mastercard. We have also entered into a number of subsequent arrangements with Mastercard, including certain brand agreements. Under these agreements, as amended, we have agreed to cooperate with Mastercard on a number of initiatives, including international expansion, product, marketing and business development collaboration. The contracts provide Marqeta with tiered incentives based on the processing volume of our customers’ transactions routed through Mastercard and its affiliated networks. The current term of the strategic relationship agreement expires in 2028 or at an earlier date if Marqeta achieves a certain processing volume milestone through the Mastercard network. Either party may terminate the agreements under specified circumstances, including upon a material breach that remains uncured for a specified period of time.
Visa
In 2017, we entered into a strategic alliance framework agreement with Visa. The agreement has been periodically amended. We have also entered into a number of subsequent arrangements with Visa, as governed by the strategic alliance framework agreement, including a service evaluation agreement, card partner agreement and certain brand agreements. Under these agreements, we have agreed to cooperate with Visa on a number of initiatives, including international expansion, product, marketing and business development collaboration. The contracts provide Marqeta with tiered incentives based on the processing volume of our customers’ transactions routed through Visa and its affiliated networks. As of February 2023, the parties have entered into an extension of the card partner agreement under the strategic alliance framework agreement for a term for five years. Either party may terminate the agreements under specified circumstances, including upon a material breach that remains uncured for a specified period of time. Visa may also elect to terminate the agreements prior to the natural expiration of the then-current term due to our failure to meet certain performance requirements.
PULSE Network
In 2013, we entered into a direct processor agreement with PULSE Network LLC, or PULSE, subsequently amended. The contract provides Marqeta with tiered incentives based on the processing volume of our customers’ transactions routed through PULSE and its affiliated networks. The current term of the contract expires in 2025 and automatically renews annually thereafter, unless either party provides written notice of its intent not to renew. Either party may terminate the agreement under specified circumstances, including upon a material breach that remains uncured for a specified period of time.
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Our Competitors
We compete in a large and evolving market. We believe that the principal competitive factors in our market include:
• industry expertise;
• ability to design and launch new card programs at broad scale;
• security and reliability;
• agility;
• speed to market;
• platform and product features and functionality;
• ability to build new technology and keep pace with innovation;
• extensibility;
• product pricing; and
• brand recognition and reputation.
Our competitors fall into three primary categories:
• Providers with legacy technology platforms, including Fidelity National Information Services (FIS), Fiserv, and Global Payments (TSYS):
We believe we offer a more agile and configurable solution that is faster to market than the traditional providers. We believe that, in general, legacy solutions are more rigid and are slower to both implement and innovate. Legacy platforms are often oriented to serve large financial institutions with standard product offerings. In contrast, the Marqeta platform supports a range of digitally enabled use cases to serve the evolving card issuing marketplace.
• Legacy API-based providers, including Galileo, i2c, and Visa DPS:
While we also compete with providers focused on a certain vertical, we believe that our modern card issuing platform’s depth and breadth offer a better and more complete solution for innovators. From its initial inception, our platform was built to be horizontal, making it more configurable and extensible for a variety of emerging use cases and verticals. Furthermore, our experience in one vertical often informs similar use cases in other verticals, helping us bring new features to market faster.
• Emerging providers, including Adyen and Stripe:
Our customers tell us that industry expertise is the number one reason for selecting an Issuer Processor. Marqeta has a track record of successful innovation. Emerging providers generally do not have the same demonstrated track record in card issuing. In addition, emerging providers that are also Acquirer Processors as their core business, are required to dedicate both time and capital to non-core parts of their business to serve the card issuing market. Overall, emerging providers generally have different go-to-market strategies and less expansive technological capabilities.
We have a deep history of card issuing expertise, enabling us to achieve technical and operating leverage that we believe potential competitors are unable to replicate. However, some of our competitors have greater financial and operating resources. Moreover, as we expand the scope of our platform, we may face additional competition. See the section titled “Risk Factors—Risks Relating to Our Business and Industry—We participate in markets that are competitive and continuously evolving, and if we do not compete successfully with established companies and new market entrants, our business, results of operations, financial condition, and future prospects could be materially and adversely affected.”
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Intellectual Property
We believe that our intellectual property rights are valuable and important to our business. We rely on a combination of patents, trademarks, copyrights, trade secrets, license agreements, confidentiality procedures, non-disclosure agreements, employee confidential information and invention assignment agreements, as well as other legal and contractual rights, to establish and protect our proprietary rights. Though we rely in part upon these legal and contractual protections, we believe that factors such as the skills and ingenuity of our employees, the functionality and infrastructure of our platform and our business, and frequent enhancements to and expansions of our platform are more important contributors to our success.
We have a patent program designed to cover various aspects of our business in the United States and abroad. These patents and patent applications are intended to protect our proprietary inventions relevant to our business. We continually review our development efforts to assess the existence of new intellectual property and our ability to patent new intellectual property.
We have an ongoing trademark and service mark registration program pursuant to which we register our brand names and product names, taglines, and logos in the United States and internationally to the extent we determine appropriate and cost-effective. We also have registered domain names for websites that we use in our business, such as www.marqeta.com and other similar variations.
In addition, we seek to protect our intellectual property rights by requiring our employees and independent contractors involved in development of intellectual property on our behalf to enter into agreements acknowledging that all works or other intellectual property generated or conceived by them on our behalf are our property, and assigning to us any rights, including intellectual property rights, that they may claim or otherwise have in those works or property, to the extent allowable under applicable law.
We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost effective. Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, circumvented, or challenged. In addition, the laws of various foreign countries where we operate may not protect our intellectual property rights to the same extent as laws in the United States. We expect that infringement claims may increase as the number of products and competitors in our market increase. In addition, to the extent that we gain greater visibility and market exposure as a public company, we face a higher risk of being the subject of intellectual property infringement claims from third parties. Any third-party intellectual property claims against us could significantly increase our expenses and could have a significant and negative impact on our business, results of operations and financial condition.
From time to time, we also incorporate certain intellectual property licensed from third parties, including under certain open source licenses. Even if any such third-party technology did not continue to be available to us on commercially reasonable terms, we believe that alternative technologies would be available as needed in every case.
Sales and Marketing
Our marketing and business development teams work together closely, under the umbrella of one, closely aligned go-to-market, or GTM, organization. Our GTM organization is responsible for how we position ourselves within the industry, growing awareness and adoption of our platform and accelerating customer acquisition. We deploy a range of marketing strategies to drive brand awareness and adoption, including public relations, advertising campaigns, and generating leads and opportunities through direct marketing (online and offline).
Our business development teams handle both sales and account management support.Our GTM organization delivers specific verticalized expertise for growth, core, enterprise, and strategic accounts. We also support our prospects and customers with industry subject matter expertise through our industry partnerships and engineering teams. This enables Marqeta to employ strategies specific to the industry, vertical, use-case and customer, to convert interest into customers, capture market share and drive revenue. Our thoughtful, multi-stage engagement process sets the stage for enduring enterprise partnerships with our customers.
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We believe that highly responsive and effective support and education are an extension of our brand and are core to ensuring we are reducing time to revenue when signing a new customer and building and maintaining trust. We firmly believe in the importance of partnering with our customers, made possible by close cooperation between customers and our customer success and delivery operations and bank partnership team.
Research and Development
Our research and development efforts focus on building enterprise-grade product and service capabilities for our customers. Technical direction is derived from our understanding of the payments ecosystem and our partners, the evolving opportunity and needs of our customer base, and the developer community. This focus enables the development of a robust, global platform to support a wide array of products, services, and use cases. Our design, product, engineering, and customer success teams collaborate to connect our customers to our Issuing Banks and Card Networks. Our technical operations team also works to ensure the successful deployment and monitoring of our platform. Software development is primarily executed by our team of professionals across design, product management, and engineering disciplines. We intend to continue to invest in our research and development capabilities to extend our platform.
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Government Regulation
We are subject, directly, or indirectly through our relationships with our Issuing Banks, customers, or Card Networks, to a number of state, federal, and foreign laws and regulations that involve matters central to our business. These laws and regulations involve privacy, data protection, information security, intellectual property, competition, and other subjects.
Many of the laws and regulations that we are subject to are still evolving and being tested in courts and could be interpreted in ways that could harm our business. In addition, the application and interpretation of these laws and regulations often are uncertain, particularly in the new and rapidly evolving industry that we operate in. Further, these laws and regulations are sometimes ambiguous or inconsistent, and the extent to which they apply to us is at times unclear. As global laws and regulations have continued to develop and evolve rapidly, it is possible that we may not be, or may not have been, compliant with each such applicable law or regulation or that we may in the future be required to obtain licenses and registrations. Any actual or alleged failure to comply with applicable laws or regulations may result in, among other things, private litigation, regulatory investigations and enforcement actions, sanctions, civil and criminal liability and constraints on our ability to continue to operate.
As we expand our geographical reach and our offerings, we may become subject to additional regulations, in the United States and internationally.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, effected comprehensive revisions to a wide array of federal laws governing financial institutions, financial services and financial markets. Among its most notable provisions is the creation of the Consumer Financial Protection Bureau, or CFPB, which is charged with regulating consumer financial products or services and which assumes much of the rulemaking authority under federal laws affecting the extension of credit. In addition to rulemaking authority over several enumerated federal consumer financial protection laws, the CFPB is authorized to issue rules prohibiting unfair, deceptive, or abusive acts or practices by persons offering consumer financial products or services and their service providers and has authority to enforce these consumer financial protection laws and CFPB rules. The CFPB has not defined what is a consumer financial product or service but has indicated informally that, in some instances, small businesses may be covered under consumer protection.
Due to our relationships with Issuing Banks and Card Networks, we may be subject to indirect supervision and examination by the CFPB in connection with our platform and certain of our products and services. CFPB rules, examinations, and enforcement actions may require us to adjust our activities and may increase our compliance costs.
In addition, the Durbin Amendment to the Dodd-Frank Act provides that Interchange Fees that an Issuing Bank or Card Network receives or charges for debit transactions are regulated by the Federal Reserve and must be “reasonable and proportional” to the cost incurred by the card issuer in authorizing, clearing, and settling the transaction. Card Network fees may not be used directly or indirectly to compensate Issuing Banks in circumvention of the interchange transaction fee restrictions. While we only partner with Issuing Banks who are exempt from the interchange fee restrictions in the Durbin Amendment to provide services, we remain sensitive to changes in the regulation of Interchange Fees. The implementation of the Dodd-Frank Act is ongoing, and as a result, its overall impact remains unclear. Its provisions, however, are sufficiently far reaching that it is possible that we could be further directly or indirectly impacted.
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Privacy, Data Protection and Information Security Regulations
We provide services that are subject to various state, federal, and foreign laws and regulations relating to privacy, data protection, and information security, including, among others, the Gramm-Leach Bliley Act, the EU General Data Protection Regulation, and the California Consumer Protection Act. We maintain privacy policies and terms of service, which describe our practices concerning the use, transmission, and disclosure of certain information. For additional information about laws and regulations relating to privacy, data protection, and information security, see the section titled “Risk Factors—Risks Relating to Regulation—Stringent and changing laws, regulations and industry standards related to privacy and data protection could adversely affect our ability to effectively provide our services and could result in claims or fines, harm our results of operations, financial condition, and future prospects, or otherwise harm our business. ”
Additionally, our platform hosts, transmits, processes, and stores payment card data and is therefore required to comply with the PCI DSS. As a result, we are subject to PCI DSS audits and must comply with related security requirements. See the section titled “Risk Factors—Risks Relating to Our Business and Industry—Our business relies on our relationships with Issuing Banks and Card Networks, and if we are unable to maintain these relationships, our business may be adversely affected. Further, any changes to the rules or practices set by Card Networks, including changes in Card Network fees or Interchange Fees, or our handling of such fees, could adversely affect our business.”
Association and Card Network Rules
Our Issuing Banks must comply with the bylaws, regulations, and requirements that are set forth by the Card Networks, including the PCI DSS and other applicable data security program requirements. In providing services through our platform, we are also subject to such requirements. To provide payment processing services, we are certified and registered with certain Card Networks as a processor for member institutions. As such, we are subject to applicable Card Network rules that could subject us to fines or penalties for certain acts or omissions. The Card Networks routinely update and modify their requirements and we, in turn, must work to comply with such updates to continue processing transactions on their networks.
Further, we are subject to network operating rules promulgated by the National Automated Clearing House Association relating to payment transactions processed on our platform using the Automated Clearing House Network and to various federal and state laws regarding such operations.
Prepaid Card Regulations
The prepaid card programs that we manage for our customers are subject to various federal and state laws and regulations, including the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 and the CFPB’s Regulation E, which impose requirements on general-use prepaid cards, store gift cards and electronic gift certificates. The CFPB also regulates prepaid accounts, including certain accounts that are capable of being loaded with funds and whose primary function is to conduct transactions with multiple, unaffiliated merchants, at ATMs, or for person-to-person transfers. These regulations include, among other things, disclosure of fees to the consumer prior to the creation of a prepaid account; liability limits and error-resolution requirements; regulation of prepaid accounts with overdraft and credit features; and the submission of prepaid account agreements to the CFPB and the publication of such agreements to the general public.
These laws and regulations are evolving, unclear, and sometimes inconsistent and subject to judicial and regulatory challenge and interpretation, and therefore the extent these laws and rules apply to, and impact, us is in flux. The extensive nature of these regulations may result in additional compliance obligations and expense for our business.
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Anti-Money Laundering
Although we are not a “money services business” or otherwise subject to AML registration requirements under U.S. federal or state law, we are subject to certain AML laws and regulations in the United States, the United Kingdom, the European Union, and other jurisdictions. In the United States, the Currency and Foreign Transactions Reporting Act, which is also known as the Bank Secrecy Act, or BSA, and which was amended by the USA PATRIOT Act of 2001, contains a variety of provisions aimed at fighting terrorism and money laundering. Among other things, the BSA and implementing regulations issued by the U.S. Treasury Department require certain financial institutions to establish AML programs, to not engage in terrorist financing, to report suspicious activity and to maintain a number of related records.
Due to our relationships with Issuing Banks that are directly regulated for AML purposes, we have implemented an AML program designed to prevent our platform from being used to facilitate money laundering, terrorist financing, and other illicit activity. When providing program management services, we ensure that our AML program complies with the requirements of our Issuing Banks. Our programs are also designed to prevent our platform from being used to facilitate activity in violation of applicable sanctions laws and regulations, including conducting business in specified countries or with designated persons or entities, including those on lists promulgated by the U.S. Department of the Treasury’s Office of Foreign Assets Controls and equivalent foreign authorities. Our AML compliance program includes policies, procedures, reporting protocols, and internal controls to guard against money laundering, terrorist financing, and other illicit activity, including the designation of a compliance officer in the United States and in other jurisdictions to oversee our AML compliance program, and it is designed to assist in managing risk associated with money laundering and terrorist financing.
Anti-Bribery Laws
We are subject to anti-corruption and anti-bribery and similar laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the U.K. Bribery Act 2010, and other anti-corruption and anti-bribery laws in countries where we conduct activities.
The FCPA includes anti-bribery and accounting provisions enforced by the Department of Justice and the Securities and Exchange Commission, or the SEC. The statute has a broad reach, covering all U.S. companies and citizens doing business abroad, among others, and defining a foreign official to include not only those holding public office but also local citizens affiliated with foreign government- run or owned organizations. The statute also requires maintenance of appropriate books and records and maintenance of adequate internal controls.
Other
We are subject to examination by our Issuing Banks’ regulators and must comply with certain regulations to which our sponsor banks are subject, as applicable. For instance, due to our relationships with certain Issuing Banks and certain customers, we may be subject to indirect supervision and examination by the Federal Deposit Insurance Corporation, state banking regulators (such as the California Department of Financial Protection and Innovation), and the Office of the Comptroller of the Currency in connection with our platform and certain of our products and services. We are also subject to audit by certain Issuing Banks. Further, certain of our customers are financial institutions or non-bank regulated entities and, as a result, we may be indirectly subject to examination and obligated to assist those customers in complying with certain regulations to which they are subject or with responses to audits of such customers.
International Regulation
The conduct of our business and the use of our products and services outside the United States are subject to various foreign laws and regulations administered by government entities and agencies in the countries and territories where we operate and where our customers and their cardholders use our products and services. For instance, we are subject to processing fee and transaction fee regulation where our cards are used and may in the future be subject to Interchange Fee regulations in other countries where our cards are used.
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Security, Privacy, and Data Protection
Trust is important for our relationship with our customers, and we take significant measures to protect the privacy and security of their data and the data of their cardholders.
Security
We devote considerable resources to our information security program, which is dedicated to ensuring the highest confidence in our custodianship of our customers’ data. Our security program is aligned to ISO 27000 standards and is regularly audited and assessed by third parties. In addition, our security program has achieved several internationally-recognized certifications and industry standard audited attestations.
Our security program focuses on preserving the confidentiality, integrity, and availability of the personal information and other confidential information of our customers and our customers’ cardholders. To this end, our team of security professionals, working in partnership with peers across our company, work to identify and mitigate risks, implement means to address identified risks, and continue to evaluate ways to improve our information security. These steps include data encryption in transit and at rest, network security, classifying and inventorying data, limiting and authorizing access controls, and multi-factor authentication for access to systems with data. We also employ regular system monitoring, logging, and alerting to retain and analyze the security state of our corporate and production infrastructure. In addition, we take steps to help ensure that appropriate security measures are maintained by third-party vendors we use, which may include conducting security reviews and audits.
Privacy and Data Protection
The privacy of our customers’ data and our customers’ cardholders’ data is important to our continued growth and success. Privacy and data protection is a shared responsibility among all our employees. We also have a privacy team that builds and executes on our privacy program, including support for data protection and privacy-related requests.
We are committed to complying with applicable privacy and data protection laws. We monitor guidance from industry and regulatory bodies and update our platform and contractual commitments accordingly.
We maintain a privacy policy that describes how we collect, use, and share personal information relating to our customers and we implement appropriate contractual provisions relating to our processing of cardholders’ personal information.
Our Employees and Human Capital Resources
As of December 31, 2022, we had a total of 958 employees and we supplement our workforce with contractors and consultants. To our knowledge, none of our employees is represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and prospective employees. We believe our culture helps us hire and retain best-in-class talent, as we empower employees to do the best work of their lives.
Diversity, Equity, and Inclusion
A key focus of our human capital management approach is our commitment to advancing diversity, equity, and inclusion. At Marqeta, we believe that creating a truly inclusive workplace means investing in company-wide programs, policies, and practices centered on equity. We strive to build a culture where everyone belongs and is empowered to bring their authentic selves to work every day, regardless of race, ethnicity, gender identity, age, religion, sexual orientation, physical ability, background or any other human qualifier.
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Compensation, Benefits, and Wellness
We believe we offer a robust, competitive compensation and benefits package that supports our employees’ overall health and financial wellness. To ensure alignment with our short- and long-term objectives, our compensation programs include base pay, and cash and equity incentives. The principal purposes of our equity incentive plans are to attract, retain and reward personnel through the granting of share-based compensation awards which allows us to align employees’ interests with our shareholders and to allow our employees to share in increases in the value of our equity.
Corporate Information
We were incorporated in 2010 under the name Marqeta, Inc. as a Delaware corporation. We completed our initial public offering in June 2021 and our Class A common stock is listed on the Nasdaq Global Select Market, or Nasdaq, under the symbol “MQ.” Our principal executive offices are located at 180 Grand Avenue, 6th Floor, Oakland, CA 94612, and our telephone number is (888) 462-7738.
Available Information
Our website is located at www.marqeta.com, and our investor relations website is located at www.investors.marqeta.com. Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on our investor relations website as soon as reasonably practicable after we file such material electronically with or furnish it to the SEC. The SEC also maintains a website that contains our SEC filings. The address of the site is www.sec.gov. We use our www.investors.marqeta.com and www.marqeta.com websites, as well as our blog posts, press releases, public conference calls, webcasts, our Twitter feed (@Marqeta), our Instagram page (@lifeatmarqeta), our Facebook page, and our LinkedIn page, as a means of disclosing material nonpublic information and for complying with our disclosure obligations under Regulation FD. The contents of our websites are not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
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