Fintech
Marqeta, MoneyLion and Verituity: adapting to the fintech crisis | PaymentsSource
Marqeta has diversified its revenue sources beyond Block, its largest customer
David Paul Morris/Bloomberg
Two years after the start crisis for payment technology companies, investors are still demanding, pressure companies to demonstrate a mix of reliable tax performance, diversified products and the ability to acquire high-profile partners.
According to experts, venture capital investments in financial technology companies, which include payment fintechs, fell 42% in 2023, from about $62 billion to $35 billion. S&P Global Markets. In 2022, funding fell 32%, compared to $91 billion in 2021. While S&P reports there are signs the pace of decline is easing, analysts say the payments technology sector still has too many vendors and not enough buyers.
“I don’t feel like the market has turned a corner,” said Aaron McPherson, director of AFM Consulting. “The fintech space continues to be crowded, which makes growth difficult.”
As a result, more consolidation is likely, McPherson said. “I keep seeing layoffs in the industry, which suggests earnings continue to be under pressure,” McPherson said.
A sampling of companies, including Marqeta, MoneyLion and Verituity, discussed how they have changed their businesses to stay relevant in a challenging market.
“There’s not a lot of money invested in fintech,” said Todd Pollak, chief revenue officer at Marqeta.
Neighborhood party
Marqueta’s success has traditionally been tied to Block, which has long provided the bulk of its revenue. Market pressures are leading Marqeta, an Oakland, California-based company founded in 2010, to seek more partners and customers.
“Even a year and a half ago, the No. 1 argument was that our Block partnership represented 70% of revenue,” Pollak said, adding that this share is now just under 50% following a restructuring that included a Marqeta leadership review. “This customer diversification is incredibly important.”
Marqeta reported gross profit of $84 million in the latest quarter, down 6% from about $89 million, year over year. Total payment volume was $67 billion, up 33% from approximately $50 billion. Marcheta’s actions it trades at around $6 per share. That’s down from a peak of over $30 in 2021.
Marqeta recently partnered with Klarna to power the company’s buy now/pay later payment card; and payments company Rain, which supports earned wages access programs for Hilton, McDonald’s, Arby’s and Subway. Marqeta has also expanded its partnership with Uber Eats to Canada, Australia, Mexico, Brazil, Colombia, Peru, Chile and Costa Rica. “There is a flight to quality,” Pollak said, adding that potential customers are looking search for payment companies that can demonstrate financial strength.
Amid this push to diversify its clients, Marqueta’s relationship with Block is growing, Pollok said. For example, Marqeta is involved in the expansion of Afterpay, a “buy now/pay later” company. Block acquired in 2021.
Learn to rotate
Demonstrating profitability was a “watershed moment” for MoneyLion, according to Dee Choubey, founder and CEO of MoneyLion.
MoneyLion in its latest quarter reported net revenue of $121 million, or 29% from the $102 million reported a year earlier. It also reported net income of $7.1 million for the quarter, up from a loss of $9.2 million a year earlier. New York-based MoneyLion was founded in 2013.
“The fintech industry is saying it is no longer possible to finance multiple loss-making products,” Choubey said. “This is good for the whole industry and it’s good for innovation.”
MoneyLion’s stock price fell from a high of more than $360 per share after its IPO in 2001 to a low of less than $10 in 2023. Its stock price has since returned to around $80 per share.
Over the past two years, the company has focused on savings accounts, moving away from a strategy that deemphasized consumer loans tied to future payments. The company is also focusing on AI-powered product search.
These efforts have helped it expand its customer base from 7.8 million to 15.5 million in the past year. MoneyLion is currently testing technology that uses large language models to analyze transactions to improve advice and other content provided to its customers.
The company’s diversification strategy is based on partnerships such as a February collaboration with EY adding MoneyLion’s embedded payments platform to EY’s US division, supporting the consultancy’s strategy to help bank clients with digital automation projects.
“We went from a neobank to a platform business,” Choubey said. “You can interact with tools to find different types of products and tools without having to be a digital banking customer. We want you to be, but you don’t have to be.”
Move faster in a crowded market
Despite the funding slowdown, the payments technology market may still have too many companies, due to the surge of digitally focused startups during the pandemic.
“There is excellent intellectual property available but not enough market to support all the sellers who want to sell it,” said Aaron Press, director of research at IDC, who like McPherson believes industry consolidation is likely.
Some of the consolidation will come from established vendors looking to replace legacy platforms or branch into adjacent spaces, Press said The FIS strategy includes the desire for acquisitions. “And some will be combinations of smaller companies trying to create scale.”
Verituity, a privately held business-to-consumer and business-to-business payments company founded in 2020, has recently increased its focus on selling faster and discounted cross-border payments. It has integrated with Mastercard’s portfolio of U.S. and international money transfer options to support a range of near-real-time business payments that don’t necessarily use dedicated instant processing networks.
“There is still some change to be made in the payments industry. There have been a lot of payments companies created in the last few years,” said Ben Turner, CEO and president of Verituity, which is based in McLean, Virginia.
To support its strategy, Verituity cited Mastercard Search which found that 33% of consumers experienced delayed or failed cross-border payments, potentially impacting cash positions, bill payments or other issues. The expansion of real-time payments presents an opportunity, Turner said, even if companies don’t adopt the two major U.S. real-time processing networks, FedNow and/or The Clearing House’s RTP Network.
“Instant payments are not as important as on-time payments,” Turner said, adding that non-real-time options can be less expensive. “There are many options that do almost the same thing as instant payments.”