Embedded finance and buy now, pay later (BNPL) are hotbeds of innovation, and Marqeta is in the middle of the action, CEO Simon Khalaf said. After starting as a modern card issuer, Marqeta has branched into card program management by adding credit, banking and risk programs to deliver a full fintech platform suite.
Khalaf said that the original conversations revolved around providing the fintech experience to large financial services providers so they could take on processors. But the market response changed the path towards embedded finance and digitally native brands that want to build financial services arms to offer neo-banking, on-demand delivery and consolidated wage access.
Then came Marqeta’s acquisition of Power Finance. The technology infusion allowed Marqeta to offer a new generation of cobranding that went beyond debit and credit cards and to novel digital products that interact with the fabric of the digital application. Customers had been telling Marqeta that they wanted a full suite of Marqeta technology, and the Power acquisition allowed them to provide it.
“I think we’re fully featured right now,’ Khalaf suggested. “Where we look for further acquisitions versus organic growth are things that finance or payment geeks would love.” Perhaps it’s a marketing automation engine that helps brands deliver card programs to their existing customer base. “It will complement the areas where we haven’t built a lot of meat around the Marqeta bones,” he added. “Core processing, rewards engine, underwriting, money movement, security, banking, AML – we’ve got it.”
Integrating rewards into the funnel
In a $150 trillion industry, it’s easy to get pulled in many directions, so Khalaf said having a focus is important. For Marqeta, a rewarding challenge is serving marketplaces by integrating rewards into the basket funnel.
“Why does it have to be 1.5% cash back?” Khalaf asked. “Why can’t I integrate my offers and say, ‘Today you’re going to get 6% cash back?’ That’s what I have in the shop, that’s what I have in inventory.
“The rewards engine, if you want to do that, you have to fax them a new reward schedule. With Marqeta, all you have to do is come to the reward engine, put in a new rule and fire it up.”
Offering an elastic experience
Khalaf envisions an elastic experience where brands offer pay now, installments, or a revolving menu. And while they’re at it, why tie that elastic payment to a supplier? Offer it at checkout or in a wallet, tie it to a debit or credit card or even a BNPL option and offer universal checkout.
As interest rates and inflation rise, suppliers need low-cost help to smooth out the revenue bumps and to meet demand. Khalaf said Marqeta provides a working capital replacement to the marketplace based on revenue predictability. Suppliers can issue a management card, come to Marqeta, and code desired covenants into the rules that limit what that capital can be used for.
“It’s all done through a card,” Khalaf said. “The card is just the mechanism to pay.”
The primacy of being a quadruple funder
The marketplace also has more delivery people clamoring for accelerated wage access. Come to Marqeta and get all these services in one place.
“One entity selling four things that all make financial sense…,” Khalaf said. “That’s why we are very excited about this concept of the quadruple funder. You get the consumer, marketplace, suppliers and labor satisfied all in one.”
The innovation potential for B2B is immense, especially when folks learn interchange rates are negotiable. Cardifying B2B brings convenience, lowers risk, and leverages the global power of Visa and Mastercard.
Khalaf said paying suppliers is hard, but cardifying it makes it an instant transaction. Why isn’t that done more often? Because of the 200-plus basis point cost. The effects can be dramatic when companies realize they can create a supplier network and virtually eliminate fees.
“It is a big space, but we at Marqeta decided to be laser-focused on having marketplaces offer effective working capital on a card to their suppliers,” Khalaf said.
Should my company offer BNPL?
Should everybody offer BNPL? Only if their ultimate goal is a strong loyalty plan. Khalaf said social networks and influencer use are growing parts of brand strategies. When he talks with companies, Khalaf asks them to describe their loyalty plans. Where are they spending their money? What do they hope to achieve?
“What this opportunity gives you is to turn the bottom of your funnel, which is payments, into your top of the funnel,” he explained. “They’ll lead to more sales, and you’ll enter into that continuous happy loop.”
“When you think about this, this is the 1989 Apple moment: Think differently,” Khalaf said. “This is a top-of-funnel play and not a bottom-of-funnel play. The POS terminal has become your storefront. That’s huge.”
2023 BNPL holiday shopping takeaways
Khalaf said the takeaway from the 2023 shopping season is that it is the year that BNPL went mainstream. Many suspected BNPL would be a fad, but they didn’t realize that lending at the POS terminal would be a game-changer. APRs of 29% combined with 7% inflation kill the spending power of the 63% of Americans living check-to-check. Erase that 36%, and you’ve provided five out of every eight with financial stability or a reduced debt burden.
“The numbers don’t lie,” Khalaf said. “We’ve seen a 28% increase between Thanksgiving and Christmas.”
Fears of debt accumulation are overstated. Those folks who spent at Thanksgiving wouldn’t have been approved before Christmas if they couldn’t afford it – the underwriting would have stopped them. Tech companies know how to adapt.
“At the end of the day, regulations are made for consumers, and consumers are voting with their usage,” Khalaf said. “Machines are very smart at predicting the propensity for default; humans are not.”
Tony is a long-time contributor in the fintech and alt-fi spaces. A two-time LendIt Journalist of the Year nominee and winner in 2018, Tony has written more than 2,000 original articles on the blockchain, peer-to-peer lending, crowdfunding, and emerging technologies over the past seven years. He has hosted panels at LendIt, the CfPA Summit, and DECENT's Unchained, a blockchain exposition in Hong Kong. Email Tony here.