The $15billion valuation placed on the Marqeta IPO is a clear indication of the rapid growth in the fintech sector and the future part to be played by BaaS and embedded financial technologies in the world financial services sector.
Marqeta demonstrates the importance of speed, collaboration, and specialisation, in enabling companies to bring new propositions to customers far faster than they could alone. The winning financial corporates will be the ones who engage with the BaaS fintechs, which points to a potential $3.6trillion market by 2030.
With Marqeta’s focus on the American market, other players such as Railsbank in Europe and Nymcard in MENA are making similar impacts.
Essentially, they are addressing the major challenge that hinders global adoption of innovative fintech services by established and emerging financial services businesses. They provide enabling fintech, FIs, and brands to embed financial services into their customer’s journey.
The challenges they address include dealing with legacy issuing technology as it can be quite burdensome, especially as the complexity of systems makes it difficult to innovate groundbreaking financial services. Additionally, managing risk and compliance is very complex, while scaling is costly and lengthy.
End-users and consumers benefit as they have the ability to get greater access to innovative financial services, have reduced transaction costs, be offered greater convenience and efficiency in financial services and have the ability to have better controls over spending and budgeting.
Fintechs, brands and enterprises benefit as they reach the unbanked and underserved consumers. They generate a revenue stream from transaction cost and are thus able to improve a customer’s experience. By simplifying operations and easily managing compliance and risk, fintechs and enterprises are able to scale their businesses faster.
EY report data:
According to an EY report, 3 out of 4 global consumers use a money transfer and payments FinTech service as globally, the adoption of Fintech is at 64%.
The US Market
US payments start-up Marqeta, which counts the likes of Uber and Stripe among existing backers, on Tuesday priced its initial public offering (IPO) well above the target range to raise $1.2 billion, a person familiar with the matter said.
Marqeta sold 45.45 million shares at $27 per share, the source said. It has earlier set a price range of $20 to $24 a share. On a fully diluted basis, which includes securities such as stock options and restricted stock units, Marqeta is currently valued at $15.23 billion, based on its IPO price.
Marqeta’s IPO comes at a time when investors are betting big on high-growth fintech startups, which have received a boost during the covid-19 pandemic that forced consumers to use more online financial services. A number of payments startups such as Flywire and Paymentus have gone public in recent weeks.
Marqeta, whose customers include Uber Technologies, food delivery company DoorDash Inc and payment firm Square Inc, previously disclosed that its revenue rose more than two-fold to $290.3 million in 2020 as homebound customers shopped more online.
Square Inc. SQ, +1.53% is Marqeta’s largest customer, relying on Marqeta technology to power Cash Card debit cards that let users spend the funds from their mobile wallets. Marqeta also enables a function that lets Square’s Cash App users receive direct deposits from employers or the government, according to the prospectus Marqeta filed with the Securities and Exchange Commission ahead of its initial public offering.
Marqeta, led by Chief Executive Officer Jason Gardner, struck a deal with Uber Technologies Inc. to become its global card-issuing partner, and JPMorgan said in July it would use the firm’s technology in its commercial card business.
Marqeta, which was incorporated in 2010, says that it is putting a modern spin on the practice of issuing customised cards. The company offers application programming interfaces, or APIs, that let companies leverage Marqeta’s relationships with banks and card networks while building out virtual and physical card programs.
UK and Europe market
UK-based Railsbank is a strong player among enterprises in the UK and Europe enabling any company to become a fintech with just a few lines of code.
Railsbank is more of a complete BaaS provider. The company allows enterprises that use its platform to build any financial product – issuing a bank account, sending/receiving money, issuing accounts, controlling cards, issuing credit, issuing insurance – which can be used to build a neobank, or a lender. BaaS allows any business to build financial services products or any business to become a fintech.
However, the reality is that global banking has never been properly executed. This is due to the complexities of legacy technology, managing global compliance and ancient bank processes which create a slow, complex and costly experience for customers – and yet we live in an increasingly digital world!
Railsbank’s mission to deliver a seamless product to companies through a technology platform that moves past the legacy issues. It does this by bringing together banks and businesses to transact digitally and in a fully compliant way.
MENA’s Emerging and Fragmented Market
Due to market fragmentation, it could be challenging for fintechs in MENA to scale across the whole region as each country has its own set of laws and regulations. The story is a little different in the US and Europe where it’s a little easier to operate on a bigger scale.
Nonetheless, FinTech in MENA has seen immense growth in a very short period of time. Based on the MENA FinTech Venture Report by ADGM/MAGNiTT, FinTech is the top industry across MENA by deals in 2018 and 2019.
NymCard is an emerging player that is removing the friction of legacy systems in MENA’s fragmented market.
The company has set out to solve 2 main issues that are hindering fintech adoption and growth in MENA:
- Legacy payment tech infrastructure
- Market fragmentation due to each country’s financial regulatory authorities
NymCard has built a modern issuing and processing API platform that allows fintechs, Financial Institutions, and enterprises to leverage its regional and global partnerships with banks, regulators, payment networks, and fraud and compliance providers to manage, build and launch card programs and other innovative payment solutions.
It would be interesting to see how Marqeta and Railsbank will expand in other markets outside US, UK, and EU. The reason being is that the ability to provide financial services in other markets will be closely tied to obtaining partnerships with local regulators in each region or country that they plan to operate in.
On the IPO, Joanne Dewar, chief executive officer of GPS said, “While in the past few years there has been considerable investment and disruption in merchant acquiring, with the emergence of winners such as Stripe and Adyen, the role of the technology providers behind the cardholder side of the payments equation – otherwise known as issuer processors – has been largely overlooked, despite enabling many of the most innovative and valuable fintechs today.
“However, that is beginning to change. The intrinsic value of issuer processors is increasingly being reflected by the post-M&A valuations of some of the biggest companies in the space, from SoFi’s $1.2billion acquisition of Galileo and its recent SPAC merger taking its market cap to $16.9billion, to SaltPay’s acquisition of Tutuka and its subsequent $700million fundraise now valuing the company at over $1billion. This is only further highlighted by retail investor interest in US-based Marqeta’s IPO, demonstrating that the year of the issuer processor has now arrived.
“While the market opportunity is huge in the US, with issuers processing $6.7trillion worth of transactions in 2020, our experience is that this opportunity stretches across the globe and could be almost five times that amount, given the rapid shift to digital payments adoption and increasingly cashless societies post-covid.”
And Hussein Ahmed, founder and CEO of Oxygen added, “Marqeta’s IPO is an important milestone in the broader fintech evolution in that, having been founded in 2010, they managed to see earlier than most how card issuing needed to be modernized and digitized.
“It is companies like Marqeta that have done the hard work of setting up the plumbing for the broader industry to offer the kinds of digital experiences consumers expect. Congrats on the IPO, you’ve earned this moment.”