Marqeta is betting that more businesses will demand customized banking and credit in a single location, and is bulking up to serve that audience.
Marqeta on Monday announced a $275 million deal to acquire Power Finance, a fintech that supports credit card management and embedded finance, or the use of an enrolled payment credential to access financial services from non-financial businesses. Embedded finance is picking up steam among banks and non-banks, which see it as a way to quickly broaden relationships with consumers and clients.
At Marqeta, the Power Finance deal follows other technology deployments that can be accessed through an application programming interface, or “banking as a service.”
“The demand was out there for us to own the full stack, to be the program manager and the processor,” said Simon Khalaf, the incoming CEO of Marqeta. Khalaf will become CEO of Marqeta on Tuesday. This follows a C-suite restructuring in the second half of 2022 that was tied to a goal of adding more products for existing clients while courting businesses in new verticals such as credit and financial services.
The two-year-old Power Finance uses the cloud to deliver credit-card issuance to financial and non-financial institutions, as well as infrastructure that embeds financial products and user experiences into the Power credit-card issuance program. Marqeta’s Power deal is expected to close during the first quarter. Randy Fernando, Power’s CEO, will then be placed in charge of Marqeta’s credit card program. Marqeta will initially combine its card rewards technology with Power, which has 54 employees.
“That’s more than $5 million per employee. It’s a phenomenal premium for a two-year-old company, but it points to how hot banking as a service is,” said Richard Crone, a payments consultant.
Controlling more of the relationships with clients allows Marqeta to support product innovation, personalized credit cards, personalized credit limits and incentive marketing, Khalaf said.
“That would have been impossible with us being the processor and someone else being the program manager,” said Khalaf who initially joined Marqeta in June 2022 as chief product officer.
There are several use cases that don’t match easily with traditional banking practices, and Khalaf contends that this is where Marqeta has room to compete. By managing credit, debit and payment processing, Marqeta plans to enable many of the same functions as a financial institution.
For example, a labor marketplace, in which employers place orders for pre-vetted workers, has a complex set of relationships that can benefit from a single payments and financial services provider, Khalaf said. The workers get paid through the marketplace, creating a need for a provider who can support debit, demand deposit accounts, banking and credit products for workers who do not have a traditional banking relationship.
Similarly, content creators who use platforms like TikTok or Instagram for revenue need to pay those marketplaces for traffic acquisition, Khalaf said. “That creates float where these creators need working capital and payments,” Khalaf said.
Marqeta, which was founded in 2009, had traditionally focused on enabling digital payments for technology companies. Its clients include Square, Uber, Affirm, DoorDash and Instacart. Goldman Sachs, Citigroup and JPMorgan Chase are among its bank clients. Marqeta focuses on a support role for these other companies, based on a philosophy that payments will eventually be embedded in most products and services, rather than exist as a distinct function.
The existing payments infrastructures at most companies rely on older programming, and are not easily amenable to adding customized products such as buy now/pay later loans, Crone said.
“Power is two years old. It started with a clean slate and has all of the APIs and capabilities for emerging innovations for credit cards and other accounts,” Crone said.
The Power deal is Marqeta’s first acquisition, and it follows an industrywide pullback in venture capital deals to fund new fintechs, said David Shipper, a strategic advisor at Aite-Novarica, who says more fintech mergers may follow.
“The slowing economy and general uncertainty about the market, could bring more willingness to sell [among fintechs],” Shipper said.
Marqeta went public in 2021, a $1.2 billion initial public offering that priced the company at $27 per share. As the technology market corrected in 2022, Marqeta’s stock slid, and is now trading at about $6 per share.
The addition of new credit products is central to the company’s growth strategy in the current technology market, Khalaf said.
“The market that’s growing is embedded finance. It’s non-financial institutions providing access to bundled financial services,” Kahlaf said.
Earlier in January, Marqeta added a new tool that makes it easier to connect consumers’ mobile wallets to merchants for point-of-sale credit. Marqeta in October launched Marqeta for Banking, which allows clients to offer checking accounts, automated clearing house transactions and instant funding through application programming interfaces. Marqeta offers banking through partnership with Pathward (the former MetaBank) and Sutton Bank in Ohio.
“Banking-as-a-service is the new gold rush,” said Crone. “It’s not the miners who make the money in a gold rush, it’s those who provide the picks and shovels.”