DRS
Table of Contents

As confidentially submitted to the Securities and Exchange Commission on February 16, 2021.

This draft registration statement has not been filed publicly with the Securities and Exchange Commission, and all information herein remains strictly confidential.

Registration No. 333-             

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Marqeta, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   7372   27-4306690

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

180 Grand Avenue

6th Floor

Oakland, CA 94612

(888) 462-7738

(Address, Including Zip Code, and Telephone Number, Including

Area Code, of Registrant’s Principal Executive Offices)

 

 

Jason Gardner

Founder, Chief Executive Officer

Marqeta, Inc.

180 Grand Avenue

6th Floor

Oakland, CA 94612

(888) 462-7738

(Name, address, including zip code, and telephone number, including

area code, of agent for service)

 

 

 

Copies to:

Caine Moss

Mitzi Chang

Goodwin Procter LLP

601 Marshall Street

Redwood City, CA 94063

(650) 752-3100

 

Seth R. Weissman

Chief Legal Officer

Marqeta, Inc.

180 Grand Avenue

6th Floor

Oakland, CA 94612

(888) 462-7738

 

Steven V. Bernard

Catherine D. Doxsee

Wilson Sonsini Goodrich & Rosati, P.C.

650 Page Mill Road

Palo Alto, CA 94304

(650) 493-9300

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-Accelerated filer      Smaller reporting company  

Emerging growth company

 

    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities

to be Registered

 

Proposed Maximum
Aggregate

Offering Price

 

Amount of

Registration Fee

Class A Common Stock, $0.0001 par value per share

  $            (1)(2)   $                

 

 

 

(1)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2)

Includes the aggregate offering price of additional shares that the underwriters have the option to purchase, if any.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

EXPLANATORY NOTE

Pursuant to the applicable provisions of the Fixing America’s Surface Transportation Act, we are omitting our financial statements for the nine months ended September 30, 2020 and 2019 because they relate to historical periods that we believe will not be required to be included in the prospectus at the time of the contemplated offering. We intend to amend this registration statement to include all financial information required by Regulation S-X at the date of such amendment before distributing a preliminary prospectus to investors.


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated                  , 2021.

                             Shares

 

LOGO

Marqeta, Inc.

Class A Common Stock

 

 

This is an initial public offering of shares of Class A common stock of Marqeta, Inc.

Prior to this offering, there has been no public market for our Class A common stock. It is currently estimated that the initial public offering price will be between $             and $             per share. We intend to apply to list our Class A common stock on the                  under the symbol “MQ.”

Following this offering, we will have two classes of common stock: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to                  votes and is convertible at any time into one share of Class A common stock. All shares of our capital stock outstanding immediately prior to this offering, including all shares held by our executive officers, employees and directors, and their respective affiliates, will be reclassified into shares of our Class B common stock immediately prior to the consummation of this offering. The holders of our outstanding Class B common stock will hold approximately     % of the voting power of our outstanding capital stock following this offering.

We are an “emerging growth company” as defined under the federal securities laws and, as such, we have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings.

 

 

See the section titled “Risk Factors” beginning on page 20 to read about factors you should consider before buying our Class A common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Initial public offering price

   $                    $                

Underwriting discount(1)

   $        $    

Proceeds, before expenses, to us

   $        $    

 

(1) See the section titled “Underwriting” for additional information regarding compensation payable to the underwriters.

The underwriters have the option to purchase up to an additional                shares of Class A common stock from us at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on                , 2021.

 

Goldman Sachs & Co. LLC    J.P. Morgan

 

           Citigroup       Barclays       William Blair       KeyBanc Capital Markets           
     

 

Nomura         HSBC

   

 

 

Prospectus dated                    , 2021


Table of Contents

TABLE OF CONTENTS

Prospectus

 

     Page  

Prospectus Summary

     1  

Risk Factors

     20  

Special Note Regarding Forward-Looking Statements

     56  

Industry and Market Data

     58  

Use of Proceeds

     59  

Dividend Policy

     60  

Capitalization

     61  

Dilution

     64  

Selected Consolidated Financial and Other Data

     67  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     69  

Business

     88  

Management

     113  

Executive Compensation

     121  

Certain Relationships and Related Party Transactions

     128  

Principal Stockholders

     134  

Description of Capital Stock

     136  

Shares Eligible for Future Sale

     143  

Material U.S. Federal Income Tax Consequences to Non-U.S. Holders of our Class A Common Stock

     146  

Underwriting

     151  

Legal Matters

     156  

Experts

     156  

Additional Information

     156  

Index to Consolidated Financial Statements

     F-1  

Through and including                     , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 

You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission, or the SEC. Neither we nor any of the underwriters have authorized anyone to provide any information or make any representations other than those contained in this prospectus or in any free writing prospectus we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of our Class A common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our Class A common stock. Our business, financial condition, results of operations and prospects may have changed since such date.

For investors outside of the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our Class A common stock and the distribution of this prospectus outside of the United States.


Table of Contents

PROSPECTUS SUMMARY

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “Marqeta,” “the company,” “we,” “us,” and “our” in this prospectus refer to Marqeta, Inc. and its consolidated subsidiary.

Marqeta, Inc.

Overview

Marqeta created modern card issuing, and we believe modern card issuing is at the heart of today’s digital economy.

When you order food using DoorDash or groceries using Instacart, modern card issuing works in the background as money moves from the app to the delivery driver’s payment card, allowing the driver to pay for exactly what you ordered, and nothing else.

When you buy a big screen TV and pay for it in installments using Affirm, modern card issuing helps move money to the payment card that Affirm uses to seamlessly pay the merchant.

When you receive money from your friend through an app, modern card issuing helps move the funds to your debit card, making it instantly available to you to make purchases.

Marqeta’s modern card issuing platform, or our Platform, empowers businesses like these to create customized payment cards that provide innovative payment experiences for their customers and end users. Before the rise of modern card issuing, creating cards was slow, complex, and subject to mistakes. Marqeta helps solve these problems. Our Platform, powered by open APIs, enables businesses to develop modern, frictionless payment card experiences for consumer and commercial use cases that are either the core of, or in support of, their core business.

The digitization and commercialization of electronic payments is accelerating as commerce continues to shift to online and mobile payments. Over the last ten years, the reach of card-based payments expanded as technology eased merchants’ acceptance of card payments. In contrast, card issuing saw relatively little innovation as financial institutions were the primary users of card issuing technology, and their needs largely remained the same. Consequently, those cards had limited functionality.

As technology-centric organizations with novel business models and needs, such as Uber and Expensify, have gained popularity over the last decade, the inherent constraints of legacy issuing technology needed a new approach. Developers, technical product managers, and visionary entrepreneurs desire the tools and infrastructure necessary to build their products to serve customers around the world. They require open, configurable, and well-documented APIs to embed advanced payment technologies natively into their platforms to programmatically authorize and direct these payment flows without needing to integrate directly with Issuing Banks and Card Networks. Open APIs have spurred innovation in previously entrenched industries.

We built the Marqeta Platform to address these needs. Our modern architecture allows for flexibility, a high degree of configurability, and accelerated product development, democratizing access to card issuing technology.



 

1


Table of Contents

Marqeta’s open APIs provide instant access to our highly scalable, cloud-based, and configurable payment infrastructure that enables our Customers to launch and manage their own card programs, issue cards to their customers or end users, and authorize and settle payments transactions.

Our business is supported by our first-mover advantage and a deep moat of technology, customer, and industry expertise. 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. Modern card issuing is secure card issuing and processing delivered via an open API platform that enables card issuers to create customized payment card products that leverage a just-in-time funding feature, authorizing their end users’ transactions in real-time. 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. We believe that Marqeta is now the ‘de facto’ modern card issuing Platform and that our continuous innovation further cements and expands our market-leading position.

We believe we are deeply integrated with our Customers in three ways: our technology underpins their core business or supports a core business process, our people become their trusted partner, and our solutions drive their key processes. In addition, our usage-based business model provides a win/win for both our Customers and us: as their businesses thrive, our net revenue grows. The strength and durability of our Customer relationships are evidenced by our year-over-year net revenue growth of over     % and dollar-based net revenue retention1 of over     % for the year ended December 31, 2020.

In 2020, the Marqeta Platform processed approximately $60 billion of card purchase volume, up 172% from the approximately $22 billion in 2019. The full year 2020 volume is less than 1% of the annual $6.7 trillion of purchase volume conducted through U.S. issuers in 2019, as estimated by The Nilson Report, and a fraction of the $30 trillion of value exchanged annually across global Card Networks, as estimated by The Nilson Report. Our products meet the card issuing and transaction processing needs of commerce disruptors and large financial institutions alike. Marqeta has already emerged as a card issuing platform category leader in many disruptive verticals, including on-demand delivery, alternative lending, expense management, disbursement, digital remittances, and digital banks, and our Platform is sought out by large financial institutions to improve their existing offerings and stay competitive with technology-focused new market entrants.

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 $143.3 million and $                million for the years ended December 31, 2019 and 2020, respectively, an increase of more than    %. We incurred net losses of $58.2 million and $                million for the years ended December 31, 2019 and 2020, respectively.

 

1 

Dollar-based net revenue retention measures our ability to increase net revenue across our existing Customer base through expansion of transaction volume offset by any reduced net revenue and loss of Customers in a given period. Dollar-based net revenue retention is calculated as net revenue derived during a given period from Customers existing at the beginning of the period, divided by net revenue from these same Customers in the prior period. This metric reflects any attrition of net revenue and loss of Customers during the current period.



 

2


Table of Contents

Trends in Our Favor

Several significant secular tailwinds strengthen our market-leading position, growth strategy, and competitive advantage. Innovations in technology and the internet have greatly increased the digitization and velocity of worldwide commerce. Fundamental changes in global commerce are creating a critical need for the digitization and transformation of the payments ecosystem, setting the stage for industry disruption. This opens the door for meaningful innovations in card issuing, transaction processing, and the digitization of global money movement.    

The Shift to Digital Payments is Accelerating

Digital commerce is increasing rapidly. Visa estimates that from 2016 to 2022, the share of global retail commerce conducted online is expected to more than double from 9% to 19%. Similarly, Euromonitor projected electronic payments would represent 36% of the total global transaction volume by 2020, up from 31% in 2017. We believe that the COVID-19 pandemic has accelerated these shifts to digital payments. Indeed, Bain & Company estimates that because of the effects of COVID-19, the percentage of global digital transaction volumes in 2025 will increase from 57% to 67%. According to McKinsey, a half-decade of change has happened in a few months as a result of COVID-19, with global cash payments dropping four to five times the annual decline rates seen over the last few years as consumers and businesses purchase a wider range of goods and services online.

We believe these digital commerce and electronic payment trends are the precursors to increased volume across the Marqeta Platform.

Software and Payments are Converging

Payments are not only becoming more digital but are also integrated more frequently into consumer and business applications. Payments capabilities are already seamlessly embedded in software applications such as ride sharing, home rental, messaging, and digital marketplaces. With this evolution, software companies are partnering with payments companies to provide simple, scalable, and configurable payment services across multiple geographies to meet their end users’ needs.

The Experience Economy is Driven by Developers who Need Modern Platforms

Across a range of industries, user experience is emerging as a primary battleground where businesses compete. Consumers now expect elegant digital experiences in nearly every aspect of their lives, from driving, ordering food, and controlling their home devices, to paying bills and banking.

If the basis of a company’s success has become its ability to create relevant and compelling user experiences, it is the software developer who leads this process. It is now developers who influence some of the most important business decisions, and they, in turn, demand modern platforms that are most likely to keep up with the pace of their imaginations—with tools and services that are of the highest configurability, flexibility, and speed.

Modern platforms with open APIs are democratizing access to ecosystems, including payments, giving businesses and their developers the tools they need to embed payments into their offerings with minimal friction. In the past, payments have been the domain of a very limited number of players with specific expertise, and now, with modern platforms, developers have convenient access to this expertise.    

Trust in New Payment Technology is Expanding

The proliferation of digital commerce required consumers and businesses to become comfortable with digital payments. Two decades after PayPal transformed online payments, consumers and businesses are increasingly



 

3


Table of Contents

turning to digital payments, digital banks, and payment technology companies for a wide range of financial services. Because of COVID-19, more people are willing to rely on digital payments for a wider variety of services. PYMNTS research finds that 40% of all U.S. consumers—approximately 99 million people—do not plan to resume regular in-store shopping.

The Rise of Globalization, the Gig Economy, and Open Data

With or without physical travel, global interconnectedness is now a fact of life for users of social networks, ride sharing platforms, ecommerce marketplaces, peer-to-peer payment apps, and personal financial applications. The accelerating pace of globalization requires businesses to find payments solutions that span geographies, currencies, and payments infrastructure. In addition, the gig economy has created new expectations about the nature of labor, transforming how and when people work and get paid. Furthermore, through digitization, advancements in technology, and various regulatory reforms, global payments data is increasingly available to financial technology innovators. The data generated by payments transactions represents a significant opportunity to minimize fraud, thereby expanding trust in new payments technology. Extensive data also helps to improve business intelligence and increase the value of payments products. These trends create numerous new use cases for relevant user experiences, digital payments, and software integrations. To take advantage of these opportunities, these emerging businesses need access to a simple, agile, scalable, and reliable platform, and we believe we are only at the beginning of this transformation in multiple geographies.

The combination of these tailwinds at Marqeta’s back propels us forward. Collectively, we believe they explain why Marqeta’s simple, trusted, and scalable global modern card issuing Platform is successful and why it continues to meet the growing needs of innovative businesses.

Our Industry

According to The Nilson Report, in 2019, consumers and businesses worldwide made over 440 billion purchase transactions on global network cards, aided by approximately 24 billion payment cards in circulation. Since the advent of card-based payments in the 1940s and 1950s, card payments have become the backbone of commercial activity due to their ease of use and widespread acceptance. A complex ecosystem underpins these transactions, consisting of Issuing Banks and Acquiring Banks, Acquirer Processors, Issuer Processors, and the Card Networks that facilitate the exchange of information and funds behind each transaction.

While the acquirer-facing side of the payments ecosystem has seen significant technology innovation over the last several years, the issuer-facing side has remained largely stagnant. There are approximately 300 Acquiring Banks within the United States. However, there are only approximately 200 Issuer Processors globally. Large financial institutions have historically relied on inflexible and complicated legacy issuer processor infrastructure. This in turn makes launching new card programs and supporting cutting-edge use cases difficult and time consuming—ultimately stifling innovation.

Modern Payments Ecosystem

Today’s card issuers include technology-centric companies that are looking to digitally integrate payment cards into their platforms and process a rapidly growing number of complex payments transactions. Twenty-first century products, including online marketplaces, sharing economy platforms, digital banking, and on-demand services, require fast to launch, configurable, and reliable payment solutions. To meet these demands and respond to the changing behaviors of end users, businesses require a modern card issuing and transaction processing platform that overcomes legacy technology constraints while also being able to integrate seamlessly with Issuing Banks and Card Networks.



 

4


Table of Contents

LOGO

 

This 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 issuing process. 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.

In other words, 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. We believe Marqeta has built such a platform.

Our Platform and Products

Marqeta provides a single, global, cloud-based, open API Platform for modern card issuing and transaction processing. In contrast to legacy infrastructure, the Marqeta Platform provides next generation payment experiences for tech-driven, developer-led companies and is well positioned to address the payment needs of commerce disruptors, tech giants, and large financial institutions.    

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. Marqeta’s intuitive and feature-rich Platform is instantly available in our testing environment so developers can build cutting-edge embedded payment capabilities.

 

   

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, including Visa, Mastercard, and Discover Network, 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.



 

5


Table of Contents
   

Configurable: The Marqeta Platform is highly configurable and is able to serve use cases previously unaddressed by legacy systems, such as financing at the point-of-sale in the lending industry. 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, and dynamic spend controls enable our Customers to operate with unmatched speed and control.

 

   

Trusted: Our Platform is trusted by some of the world’s largest financial institutions and commerce disruptors to perform at scale. From transaction initiation through completion, the Marqeta Platform incorporates real-time confirmation of payments to our Customers in seconds. We meet the highest standards of Payment Card Industry, or PCI, compliance and provide a trusted environment for card issuing and payment processing with security, transparency, and real-time information.

Marqeta’s modern, global Platform helps many of the world’s innovators build, run, and optimize their card programs. Our innovative products are developed with deep domain expertise and a customer-first mindset. At its core, our Platform offers three primary capabilities: Marqeta Issuing, Marqeta Processing, and Marqeta Applications to launch, scale, and manage card programs.

 

   

Marqeta Issuing: We enable our Customers to issue physical, virtual, and tokenized cards. With approximately 275 million cards issued through the Marqeta Platform as of December 31, 2020, across a deep and varied Customer base, we have significant industry experience supporting card programs of multiple types and sizes.

 

   

Marqeta Processing: Our Platform can process transactions with control and speed for our Customers, leveraging certain of our core competencies.

 

   

Marqeta Applications: Using the Marqeta Platform, 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 programs are as successful as possible.

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 visionary entrepreneurs at innovative companies. As of December 31, 2020, we had approximately 57 million active cards2 and during the twelve-month period ending December 31, 2020, we processed approximately 1.6 billion transactions on our Platform across the globe.

We employ a usage-based model, based on payment volumes, that aligns our interests with those of our Customers. We derive the majority of our revenue from Interchange Fees generated by card transactions through our Platform. In addition to Interchange Fees, we also generate revenue from other processing services, including monthly platform access, ATM fees, fraud monitoring, and tokenization services.

Our Platform enables new and existing Customers to create innovative and configurable card issuing programs and to increase their transaction volumes. Additionally, as we expand our use cases, product offerings, and global footprint, we help our Customers expand into new verticals, programs, markets, and geographies. We have experienced significant success with this strategy to date. For the year ended December 31, 2020, we achieved year-over-year net revenue growth of over     % and dollar-based net revenue retention of over     %.

 

2 

Active cards are defined as the number of transacting cards with one or more successful clearing events during the preceding twelve months.



 

6


Table of Contents

Our Strengths

The following strengths and advantages power our business model:

Modern Card Issuing Trailblazer: Marqeta created modern card issuing. We believe we have the first-mover advantage and have leveraged it to establish strong brand recognition and capture significant market share in an industry where customer retention is key and innovation can provide outsized rewards. We believe being first in the market and one of the only modern platforms focused on issuing and processing gives us a deep moat of technology, customer, and industry expertise. Our modern Platform offers multiple issuing and processing innovations, including open APIs, JIT Funding, and Tokenization as a Service. We continue to innovate on our Platform, and we believe that this innovation, coupled with our deep expertise, keeps us in a market-leading position.

Widening the Gap via Continuous Innovation: We believe that we continually increase our market-leading position by innovating on our flexible, agile, and extensible Platform to bring new use cases to market. As we partner with our existing Customers to support their ambitious global projects and develop cutting-edge use cases for each vertical, we also attract new Customers seeking best-in-class solutions. The highly configurable Marqeta Platform is agile out of the box and at scale. Our developer-centric APIs, sandboxes, and software development kits, or SDKs, written in modern programming languages, help our Customers go to market with unmatched speed. We offer that same flexibility and extensibility when Customer programs are live and in-market so that they can expand to new geographies and verticals. These unique characteristics make our Platform valuable to existing Customers and attractive to prospective Customers. We enable innovation that introduces opportunities for further innovation by Customers, creating a strong network effect that further cements and expands our market-leading position.

Enduring Customer Relationships: Our dollar-based net revenue retention was over     % for the year ended December 31, 2020, illustrating the strength and durability of our Customer relationships. We believe we are deeply integrated with our Customers in three ways: our technology underpins their core business or supports a core business process, our people become their trusted partners, and our solutions drive their key processes. 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. Indeed, our mutually beneficial contractual terms are designed to provide a win/win for both our Customers and us; as their businesses thrive, our net revenue grows.

People-centric Culture and Values: Nothing is more powerful than a unified team focused on collective results. We believe our culture of customer centricity, innovation, teamwork, and clarity of mission is why Customers trust us with their mission critical payments needs. 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 also believe our culture helps us hire and retain best-in-class talent. We believe we have created an environment where everyone belongs, and employees are empowered to do the best work of their lives.

The aggregate effect of these strengths and advantages is a strong competitive moat, predicated on our scale, Customer relationships, and the technological complexities that we have managed to streamline over time, while remaining agile, extensible, and innovative.

Market Opportunity

We believe the opportunity within payments and modern card issuing is tremendous. Global money movement amounted to $70.3 trillion in 2019, representing approximately 4 trillion individual payment transactions, according to Euromonitor. The Nilson Report estimates that in 2019, approximately one-tenth of these



 

7


Table of Contents

transactions was carried out across global network cards, representing approximately $30 trillion of value exchanged. In 2020, the Marqeta Platform processed approximately $60 billion of card purchase volume. This is less than 1% of the annual $6.7 trillion of purchase volume conducted through U.S. issuers in 2019, as estimated by The Nilson Report. We believe that our share of this massive opportunity will continue to increase due to our unique Platform, competitive advantages, and a strong culture of innovation.

The Marqeta Platform is designed to meet the card issuing and transaction processing needs of both the new use cases created by technology innovators and the traditional use cases. We have built products that power commerce disruptors and large financial institutions alike. According to an Edgar Dunn study we commissioned, new verticals such as on-demand delivery, alternative lending, expense management, disbursement, digital remittances, and digital banks already command significant payment volumes today. Based on the Edgar Dunn study, these new verticals represented over $2 trillion of card processing volume in 2019, and this volume is expected to more than double to $4.8 trillion in 2023. Marqeta has already emerged as a category leader in many of these verticals, and we expect to continue to increase our market share, both in these verticals and new use cases, as the number of transactions and transaction volumes both rapidly grow. Today, the top 20 U.S. issuers support the processing of more than $4.5 trillion in annual payments volume, according to The Nilson Report. Our Platform is sought out by large financial institutions to improve their existing offerings and stay competitive with digitally native new market entrants.

Our Growth Strategy

Our market opportunity is tremendous, and we intend to expand our addressable market and increase our revenue by pursuing the following strategies:

 

   

Grow With Our Existing Customers

 

   

Onboard New Customers

 

   

Broaden Our Global Reach

 

   

Develop New Products and Services

 

   

Expand Our Platform

 

   

Invest In Our People

Culture & Values

Our mission is to be the global standard for modern card issuing, empowering builders to bring the most innovative products to the world. Great missions are achieved by great teams, and at Marqeta, everything starts with our culture. A great culture attracts and retains great people who find their purpose in serving our Customers.

Our culture is built on the foundation of seven core values:

 

   

Everyone Belongs

 

   

Build One Marqeta

 

   

Connect the Customer

 

   

Lead Innovation

 

   

Deliver Results

 

   

Quality First

 

   

Marqeta Cares



 

8


Table of Contents

Our investment in our culture and values is the driving force behind our innovation, customer centricity, and excellence. This is why extraordinary people choose to come to Marqeta to do the best work of their lives, and we believe this is why Customers choose us as a partner to scale their businesses globally.

Risk Factors Summary

Our business is subject to numerous risks and uncertainties that you should consider before investing in our company. These risks are described more fully in the section titled “Risk Factors.” These risks include, but are not limited to, the following:

 

   

We have experienced rapid net revenue growth in recent periods and our recent net revenue growth rates may not be indicative of our future net revenue growth.

 

   

If we fail to manage our growth effectively, we may be unable to execute our business plan or maintain high levels of Customer service and satisfaction, and our business, results of operations, and financial condition could be adversely affected.

 

   

Future net revenue growth depends on our ability to retain existing Customers, drive increased transaction volumes processed on our Platform, and attract new Customers in a cost-effective manner.

 

   

We participate in markets that are competitive and continuously evolving, and if we do not compete effectively with established companies and new market entrants, our business, results of operations, and financial condition could be adversely affected.

 

   

We currently generate significant net revenue from our two largest Customers, Square, Inc., or Square, and Maple Bear, Inc. (doing business as Instacart), and the loss or decline in net revenue from either of these Customers could adversely affect our business, results of operations, and financial condition.

 

   

Our recent growth, ongoing changes in our industry, and our transaction mix make it difficult to forecast our net revenue and evaluate our business and future prospects.

 

   

We have a history of net losses, we anticipate increasing operating expenses in the future, and we may not be able to achieve and maintain profitability.

 

   

We may experience quarterly fluctuations in our results of operations due to a number of factors that make our future results difficult to predict and could cause our results of operations to fall below analyst or investor expectations.

 

   

The global COVID-19 pandemic could adversely affect our business, results of operations, and financial condition.

 

   

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 Interchange Fees, could adversely affect our business.

 

   

We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.

 

   

There has been no prior public market for our Class A common stock, the trading price of our Class A common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

 

   

The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to this offering, including our directors, executive officers,



 

9


Table of Contents
 

and their respective affiliates. This ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval, and that may depress the trading price of our Class A common stock.

If we are unable to adequately address these and other risks we face, our business, results of operations, financial condition, and prospects may be harmed.

Channels for Disclosure of Information

Following the completion of this offering, we intend to announce material information to the public through filings with the SEC, the investor relations page on our website, blog posts on our website, press releases, public conference calls, webcasts, our twitter feed (@Marqeta), our Instagram page (@lifeatmarqeta), our Facebook page, and our LinkedIn page.

The information disclosed by the foregoing channels could be deemed to be material information. As such, we encourage investors, the media, and others to follow the channels listed above and to review the information disclosed through such channels.

Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website. Information contained on or accessible through our website is not incorporated by reference into this prospectus, and inclusion of our website address in this prospectus is an inactive textual reference only. You should not consider information contained on our website to be part of this prospectus or in deciding whether to purchase shares of our Class A common stock.

Corporate Information

We were incorporated in 2010 under the name Marqeta, Inc. as a Delaware corporation. Our principal executive offices are located at 180 Grand Avenue, 6th Floor, Oakland, CA 94612, and our telephone number is (888) 462-7738. Our website address is www.marqeta.com. Information contained on or that can be accessed through our website does not constitute part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.

“Marqeta” is our registered trademark in the United States, Canada, the European Union, the United Kingdom, and Norway. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.

Emerging Growth Company

The Jumpstart Our Business Startups Act, or the JOBS Act, was enacted in April 2012 with the intention of encouraging capital formation in the United States and reducing the regulatory burden on newly public companies that qualify as “emerging growth companies.” We are an emerging growth company within the meaning of the JOBS Act. As an emerging growth company, we may take advantage of certain exemptions from various public reporting requirements, including not being required to have our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes Oxley Act, certain reduced disclosure requirements related to the disclosure of executive compensation in this prospectus and in our periodic reports and proxy statements and exemptions from the requirement that we hold a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an emerging growth company.



 

10


Table of Contents

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.

For certain risks related to our status as an emerging growth company, see the section titled “Risk Factors—Risks Relating to Our Initial Public Offering and Ownership of Our Common Stock—We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our Class A common stock less attractive to investors.”



 

11


Table of Contents

The Offering

 

Class A common stock offered by us

             shares

 

Class A common stock to be outstanding after this offering

             shares

 

Class B common stock to be outstanding after this offering

             shares

 

Option to purchase additional shares of Class A common stock from us

We have granted the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase up to an additional              shares from us.

 

Total Class A common stock and Class B common stock to be outstanding after this offering

             shares (or              shares if the underwriters’ option to purchase additional shares in this offering is exercised in full).

 

Use of proceeds

The principal purposes of this offering are to increase our capitalization, increase our financial flexibility, create a public market for our Class A common stock and enable access to the public equity markets for our stockholders and us. We estimate that the net proceeds from the sale of shares of our Class A common stock that we are selling in this offering will be approximately $             million (or approximately $             million if the underwriters’ option to purchase additional shares in this offering is exercised in full), based upon an assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

We currently intend to use the net proceeds of this offering for working capital, other general corporate purposes, and to fund our growth strategies discussed in this prospectus. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products, services, technologies, or other assets. We do not, however, have agreements or commitments to enter into any acquisitions or investments at this time. See the section titled “Use of Proceeds” for additional information.

 

Voting rights

We will have two classes of common stock: Class A common stock and Class B common stock.



 

12


Table of Contents
 

Shares of our Class A common stock are entitled to one vote per share.

 

 

Shares of our Class B common stock are entitled to          votes per share.

 

 

Holders of our Class A common stock and Class B common stock will generally vote together as a single class, unless otherwise required by law or our amended and restated certificate of incorporation that will be in effect on the completion of this offering. The holders of our outstanding Class B common stock will hold approximately     % of the voting power of our outstanding capital stock following the completion of this offering and will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change in control transaction. See the sections titled “Principal Stockholders” and “Description of Capital Stock” for additional information.

 

Concentration of ownership

Upon the completion of this offering, our executive officers and directors, and their affiliates, will beneficially own, in the aggregate, approximately     % of our outstanding shares of common stock, representing approximately     % of the voting power of our outstanding shares of common stock.

 

Risk factors

See the section titled “Risk Factors” for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock.

 

Proposed                 trading symbol

“MQ.”

The number of shares of Class A common stock and Class B common stock that will be outstanding after this offering is based on no shares of our Class A common stock and              shares of our Class B common stock outstanding as of December 31, 2020, and excludes:

 

   

             shares of our Class B common stock issuable upon the exercise of options to purchase shares of our Class B common stock that were outstanding as of December 31, 2020, with a weighted-average exercise price of $         per share;

 

   

             restricted stock units, or RSUs, for shares of our Class B common stock that are issuable upon satisfaction of service and liquidity conditions outstanding as of December 31, 2020, for which the service-based condition was not yet satisfied as of December 31, 2020;

 

   

             shares of our Class B common stock issuable upon the exercise of options to purchase common stock granted after December 31, 2020, with a weighted-average exercise price of $             per share;

 

   

                 RSUs for shares of our Class B common stock that are issuable upon satisfaction of service and liquidity conditions that were granted after December 31, 2020;



 

13


Table of Contents
   

                 shares of our Class B common stock issuable upon conversion of redeemable convertible preferred stock issued after December 31, 2020;

 

   

                 shares of Class B common stock issuable upon the exercise of redeemable convertible preferred stock warrants held by Comerica Ventures Incorporated, outstanding as of December 31, 2020, with a weighted-average exercise price of $                 per share;

 

   

                 shares of Class B common stock issuable upon the exercise of common stock warrants held by Silicon Valley Bank, outstanding as of December 31, 2020, with a weighted-average exercise price of $                 per share;

 

   

                 shares of our Class B common stock reserved for future issuance to fund and support our social impact initiatives;

 

   

                 shares of Class B common stock issuable upon the exercise of a common stock warrant held by Uber Technologies, Inc., dated September 15, 2020, with an exercise price of $                 per share,                of which are currently exercisable and                of which are exercisable upon attaining certain milestones;

 

   

                 shares of our Class B common stock reserved for future issuance pursuant to our 2011 Equity Incentive Plan, as amended, or our 2011 Plan; and

 

   

            shares of our Class A common stock reserved for future issuance under our share-based compensation plans to be adopted in connection with this offering, consisting of:

 

   

                shares of our Class A common stock reserved for future issuance under our 2021 Stock Option and Incentive Plan, or our 2021 Plan.

Our 2021 Plan provides for annual automatic increases in the number of shares of our Class A common stock reserved thereunder and increases to the number of shares of our Class A common stock that may be granted thereunder based on shares underlying any awards under our 2011 Plan that expire, are forfeited or are otherwise terminated, as more fully described in the section titled “Executive Compensation—Employee Benefits and Stock Plans.”

Except as otherwise indicated, all information in this prospectus assumes:

 

   

the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering;

 

   

the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into an aggregate of                  shares of our Class B common stock, the conversion of which will occur immediately prior to the completion of this offering;

 

   

the reclassification of our outstanding existing common stock into an equivalent number of shares of our Class B common stock and the authorization of our Class A common stock, which will occur immediately prior to the completion of this offering;

 

   

the automatic conversion of the redeemable convertible preferred and common stock warrants to Class B common stock warrants, and the resulting remeasurement and reclassification of the redeemable convertible preferred stock warrant liabilities to additional paid-in capital, which will occur immediately prior to the completion of this offering;

 

   

the net issuance of                shares of our Class B common stock issuable pursuant to the vesting and settlement of                  RSUs for which the service condition was satisfied as of December 31, 2020, and for which we expect the liquidity condition to be satisfied in connection with this offering, based



 

14


Table of Contents
 

upon an assumed initial public offering price of $                per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus;

 

   

no exercise by the underwriters of their option to purchase up to an additional                shares of Class A common stock from us in this offering; and

 

   

no exercise of outstanding stock options or warrants or settlement of outstanding RSUs subsequent to December 31, 2020.



 

15


Table of Contents

Summary Consolidated Financial and Other Data

The following tables summarize our consolidated financial and other data. We derived the summary consolidated statements of operations data for the years ended December 31, 2019 and 2020, and the consolidated balance sheet data as of December 31, 2020 from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the following summary consolidated financial data and other data below in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     Year Ended December 31,  
         2019             2020      
     (in thousands, except per share
amounts or as noted)
 

Consolidated Statements of Operations Data:

    

Net revenue

   $ 143,267      

            

 

Costs of revenue

     82,814    
  

 

 

   

 

 

 

Gross profit

     60,453    
  

 

 

   

 

 

 

Gross margin

     42  

Operating expenses:

    

Compensation and benefits(1)

     86,506    

All other operating expenses

     32,810    

Loss from operations

     (58,863  

Other income (expense), net

     698    

Income tax expense

     (35  
  

 

 

   

 

 

 

Net loss

   $ (58,200  
  

 

 

   

 

 

 

Net loss per share attributable to Class A and Class B common stockholders, basic and diluted(2)

   $ (1.07  

Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted

     113,852    

 

(1)

Compensation and benefits include share-based compensation expense of $21.8 million and $            million for the year ended December 31, 2019 and December 31, 2020, respectively. Following this offering, our future operating expenses, particularly in the quarter in which this offering is completed, will include substantial share-based compensation expense with respect to our RSUs as well as any other share-based awards we may grant in the future.

(2)

Refer to Note 13 to our consolidated financial statements for the detailed calculation.



 

16


Table of Contents
     As of December 31, 2020  
     Actual      Pro
forma(1)
     Pro forma as
adjusted(2)(3)
 
     (in thousands)  

Consolidated Balance Sheet Data:

        

Cash and cash equivalents

   $                      

Restricted cash

        

Marketable securities

        

Working capital

        

Total assets

        

Total liabilities

        

Redeemable convertible preferred stock

        

Total stockholders’ deficit

        

 

(1)

The pro forma column in the consolidated balance sheet data table above gives effect to (i) the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, (ii) the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into an aggregate of                  shares of our common stock, (iii) the reclassification of our outstanding common stock as Class B common stock, (iv) the reclassification of the redeemable convertible preferred stock warrant liabilities to additional paid-in capital, (v) the net issuance of                shares of our common stock issuable pursuant to the vesting and settlement of                RSUs for which the service condition was satisfied as of December 31, 2020, and for which we expect the liquidity condition to be satisfied in connection with this offering, based upon the initial public offering price of $                per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and (vi) the increase in other accrued liabilities and an equivalent decrease in additional paid-in capital of $                in connection with tax withholding obligations related to such RSUs, based upon the initial public offering price of $                per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, all of which will occur immediately prior to the completion of this offering, as if such actions had occurred on December 31, 2020.

(2)

The pro forma as adjusted column in the balance sheet data table above gives effect to (a) the pro forma adjustments set forth in footnote (1) above and (b) our receipt of estimated net proceeds from the sale and issuance by us of                shares of our Class A common stock in this offering, based on an assumed initial public offering price of $                per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(3)

Each $1.00 increase or decrease in the assumed initial public offering price of $                per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our cash, cash equivalents and marketable securities, total assets, and total stockholders’ deficit by approximately $                million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of our Class A common stock offered by us would increase or decrease, as applicable, our cash, cash equivalents and marketable securities, total assets, and total stockholders’ deficit by approximately $                million, assuming the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.



 

17


Table of Contents

Key Operating Metric and Non-GAAP Financial Measures

We review a number of operating and financial metrics, including the key metric set forth below, to help us evaluate our business and growth trends, establish budgets, evaluate the effectiveness of our investments, and assess operational efficiencies. In addition to the results determined in accordance with GAAP, the following table sets forth a key operating metric and non-GAAP financial measures that we consider useful in evaluating our operating performance.

 

     Year Ended
December 31,
 
     2019     2020  

Total Processing Volume (TPV) (in millions)(1)

   $ 21,674                     

Adjusted EBITDA (in thousands)(2)

   $ (34,026  

Adjusted EBITDA Margin(3)

     (23.8 )%   

 

(1)

Total Processing Volume (TPV) represents the total dollar amount of payments processed through our Platform, net of returns and chargebacks.

(2)

Adjusted EBITDA is a non-GAAP financial measure that is calculated as net income (loss) adjusted to exclude share-based compensation expense, depreciation and amortization, income tax expense, and other income (expense) net, which consists of interest expense from a bank loan, interest income from our marketable securities portfolio, fair value adjustments to redeemable convertible preferred stock warrant liabilities, and impairment of equity method investments.

(3)

Adjusted EBITDA Margin is a non-GAAP financial measure that is calculated as adjusted EBITDA divided by net revenue.

For additional information about our key metric and non-GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metric and Non-GAAP Financial Measures.”



 

18


Table of Contents

SELECT DEFINED TERMS

Acquirer Processor. An Acquirer Processor provides the technology that facilitates the flow of card payment information through Card Networks to the Issuing Bank.

Acquiring Bank. An Acquiring Bank is the financial institution that merchants use to hold funds and manage their business. The Acquiring Bank may work with an Acquirer Processor to provide access to the Card Networks.

Card issuer. A card issuer is a business that issues customized card products to its end users.

Card Network. A Card Network provides the infrastructure for settlement and card payment information that flows between the Issuer Processor and the Acquirer Processor.

Customer. A Customer is a current contracted customer of Marqeta.

Interchange Fees. Interchange Fees are transaction-based and volume-based fees set by a Card Network and paid by an Acquiring Bank to the Issuing Bank that issued the payment card used to purchase goods or services from a merchant. Our agreements with Issuing Banks provide that we receive 100% of the Interchange Fees for processing our Customer’s card transactions.

Issuer Processor. An Issuer Processor provides a technology platform, ledger, and infrastructure to support a card issuer and connects with a Card Network to facilitate payment transactions.

Issuing Bank. An Issuing Bank is the financial institution that issues a payment card (credit, debit, or prepaid) either on its own behalf or on behalf of a card issuer.

Just-In-Time Funding or JIT Funding. A feature of the Marqeta Platform that allows Customers to programmatically authorize and fund individual transactions while participating in the approval decision in real time.

Marqeta Platform or Platform. Refers to our modern card issuing platform.

Modern card issuing. Modern card issuing is secure card issuing and processing delivered via an open API platform that enables card issuers to create customized payment card products that leverage a just-in-time funding feature, authorizing their end users’ transactions in real-time.

Revenue Share. Revenue Share refers to provisions in our Customer contracts under which we share a portion of Interchange Fees with our Customers.

Tokenization as a Service or TaaS. A Marqeta product that allows a card issuer to provision a token to a digital wallet (e.g., Apple Pay, Google Pay, Samsung Pay), allowing an end user to securely store card information in the digital wallet. Customers that use our Tokenization as a Service benefit from our Platform, tokenization expertise, and built-in certifications with digital wallets and the Card Networks.

 

19


Table of Contents

RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, before making a decision to invest in our Class A common stock. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, results of operations, financial condition, and prospects could be adversely affected. In that event, the trading price of our Class A common stock could decline, and you could lose part or all of your investment.

Risks Relating to Our Business and Industry

We have experienced rapid net revenue growth in recent periods and our recent net revenue growth rates may not be indicative of our future net revenue growth.

We have experienced rapid growth in recent periods. Our net revenue was $143.3 million and $                 million for the years ended December 31, 2019 and 2020, respectively, representing a growth rate of approximately        %. In future periods, we may not be able to sustain net revenue growth consistent with recent history, or at all. Further, because we operate in an evolving payments industry, our ability to grow and innovate is important to our success. We believe our net revenue growth depends on several factors, including, but not limited to, our ability to:

 

   

acquire new customers, or Customers, and retain existing Customers;

 

   

achieve widespread acceptance and use of our Platform and the services we offer;

 

   

increase the use of our Platform and our offerings, and the transaction volume and the number of transactions on our Platform;

 

   

effectively scale our operations while maintaining high levels of service and Customer satisfaction;

 

   

maintain and increase our net revenue and gross profit by continuing to innovate and expanding our product and service offerings;

 

   

diversify our Customer base;

 

   

maintain and grow our network of vendors and partners, including Issuing Banks, Card Networks, and other vendors and partners;

 

   

hire and retain talented employees at all levels of our business;

 

   

maintain the security and reliability of our Platform;

 

   

adapt to changes in laws and regulations applicable to our business;

 

   

adapt to changing macroeconomic conditions and evolving conditions in the payments industry;

 

   

introduce and grow widespread adoption of our Platform in new markets outside of the United States; and

 

   

successfully compete against established companies and new market entrants, including legacy issuing platforms and modern payments technology companies.

If we are unable to accomplish these objectives, our net revenue growth may be adversely affected.

We also expect our operating expenses to increase in future periods, and if our net revenue growth does not increase to offset these anticipated increases in our operating expenses, our business, results of operations, and financial condition will be adversely affected, and we may not be able to achieve or maintain profitability. We have also encountered in the past, and expect to encounter in the future, risks and uncertainties frequently

 

20


Table of Contents

experienced by growing companies in evolving industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our growth rates may slow and our business would suffer. In the near term, we expect our Customer, total processing volume, or TPV, and net revenue growth rates to be variable as a result of COVID-19, and we are unable to predict the duration, degree, or volatility of future growth with any certainty.

If we fail to manage our growth effectively, we may be unable to execute our business plan or maintain high levels of Customer service and satisfaction, and our business, results of operations, and financial condition could be adversely affected.

We have experienced, and expect to continue to experience, rapid growth, which has placed, and may continue to place, significant demands on our management and our operational and financial resources. For example, our headcount has grown from 233 employees as of December 31, 2018 to 509 employees as of December 31, 2020. We have recently established offices in the United Kingdom and as our employees increasingly work from geographic areas across the globe, we plan to continue to expand our international presence and operations into other countries in the future. We have also experienced significant growth in the number of Customers using our Platform, the number of card programs and solutions we manage for our Customers, and transaction volume processed through our Platform.

To manage operations and personnel growth, we will need to continue to grow and improve our operational, financial, and management controls and our reporting systems and procedures. We will require significant capital expenditures and the allocation of valuable management resources to expand our systems and infrastructure before our net revenue increases without any assurances that our net revenue will increase. We also believe that our corporate culture has been and will continue to be a valuable component of our success. As we expand our business and mature as a public company, we may find it difficult to maintain our corporate culture while managing this growth. Failure to manage our anticipated growth and organizational changes in a manner that preserves the key aspects of our culture could reduce our ability to recruit and retain personnel, innovate, operate effectively, and execute on our business strategy, potentially adversely affecting our business, results of operations, and financial condition. Additionally, as a result of COVID-19, our global workforce has been working remotely, with expected future phased office re-openings, potentially limiting our employees’ ability to perform certain job functions and, over time, negatively impacting corporate culture.

Further, as more of our employees are located in new jurisdictions, we will be required to invest resources and to monitor continually changing local regulations and requirements, and we may experience a resulting increase in our expenses, decrease in employee productivity, and changes in our corporate culture.

In addition, as we expand our business, it is important that we continue to maintain a high level of Customer service and satisfaction. As our Customer base continues to grow, we will need to expand our account management and Customer service teams and continue to scale our Platform. If we are not able to continue to provide high levels of Customer service, our reputation, as well as our business, results of operations, and financial condition, could be adversely affected.

Future net revenue growth depends on our ability to retain existing Customers, drive increased transaction volumes processed on our Platform, and attract new Customers in a cost-effective manner.

Our net revenue growth substantially depends on our ability to maintain and grow our relationships with existing Customers and increase the volume of transactions processed on our Platform. If our prospective and existing Customers do not recognize or continue to recognize the need for and benefits of our Platform and our products, they may decide to adopt alternative products and services to satisfy their business needs. To grow our business and extend our market position, we intend to focus on educating potential Customers about the benefits of our Platform, expanding the capabilities of our Platform and our product offerings, and bringing new products and services to market to increase market acceptance and use of our Platform.

 

21


Table of Contents

Our Customer contracts generally provide for a termination clause that allows our Customers to terminate their contract at any time following a limited notice period. In addition, some of our Customers are not subject to any minimum volume commitments under their contracts and have no obligation to continue using our Platform, products, or services. We cannot assure you that Customers will continue to use our Platform or that we will be able to continue processing transaction volumes at the same rate as we have in the past. Customers may terminate or reduce their use of our Platform for any number of reasons, including their level of satisfaction with our products and services, the effectiveness of our support services, our pricing and the pricing and quality of competing products or services, or the effects of global economic conditions. The loss of Customers or reductions in their transaction volumes, particularly any loss of or reductions by Square or Instacart, may adversely affect our business, results of operations, and financial condition. Our growth may decline in the future if Customers are not satisfied with our Platform or our ability to meet our Customers’ needs and expectations. Further, the complexity and costs associated with switching transaction volume to our competitors may not ultimately prevent a Customer from switching to another provider. To achieve continued growth, we must not only maintain our relationships with our existing Customers, but also encourage them to increase adoption and usage of our products. For example, Customers can have multiple card programs on our Platform across different use cases and geographies. If Customers do not renew their contracts or broaden their use of our services, our growth may slow or stop and our business, results of operations, and financial condition may be materially and adversely affected.

In addition to capitalizing on the potential net revenue embedded within our existing Customer base, we must continue to attract new Customers to promote growth. Our growth depends on developing new use cases and industry verticals across new geographies. We may face additional challenges that are unique to the markets we target and we may not be able to acquire new Customers in a cost-effective manner. To reach new Customers, we may need to spend significantly more on sales and marketing to generate awareness of our Platform and educate potential Customers on the value of our Platform. We may also need to adapt our existing technology and offerings or develop new or innovative capabilities to meet the particular needs of Customers in these new use cases or new markets, and there can be no assurance that we will be successful in these efforts. We may not have adequate financial or technological resources to develop effective and secure products and services that will satisfy the demands of Customers in these new markets. If we fail to attract new Customers, including Customers in new use cases, industry verticals, and geographies, and to expand our Platform in a way that serves the needs of these new Customers, then we may not be able to continue to grow our net revenue.

We participate in markets that are competitive and continuously evolving, and if we do not compete effectively with established companies and new market entrants, our business, results of operations, and financial condition could be adversely affected.

We were founded in 2010, and we provide a single, global, cloud-based, open-API Platform for modern card issuing and payment processing. We provide card issuing, payment processing, risk management, data insights, and a variety of controls, customizations, and features through our Platform. Our modern card issuing Platform is situated in the evolving financial technology and payments industries that are intensely competitive and subject to rapidly evolving technology, shifting customer needs, new market entrants, and introductions of new products and services. We face competition along several dimensions, including providers with legacy technology platforms, such as Global Payments (TSYS), Fiserv (First Data), and Fidelity National Information Services; vertical-focused providers, such as Wex and Comdata; and emerging providers, such as Adyen and Stripe. We believe the principal competitive factors in our market include industry expertise, platform and product features and functionality, ability to build new technology and keep pace with innovation, scalability, extensibility, product pricing, security and reliability, brand recognition and reputation, agility, and speed to market. We expect competition to increase in the future as established and emerging companies continue to enter the markets we serve or attempt to address the problems that our Platform addresses. Moreover, as we expand the scope of our Platform, we may face additional competition.

 

22


Table of Contents

Many of our existing competitors have, and some of our potential competitors could have, substantial competitive advantages such as greater brand name recognition, longer operating histories, larger sales and marketing budgets and resources, more established relationships with vendors or customers, greater customer support resources, greater resources to make acquisitions and investments, lower labor and development costs, larger and more mature intellectual property portfolios, and substantially greater financial, technical, and other resources. Such competitors with greater financial and operating resources may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, customer requirements, or regulatory developments. In addition, there has been a recent increase in large merger and acquisition transactions in the payments industry, and future mergers and acquisitions by these companies may lead to even larger competitors with more resources.

Conditions in our markets could also change rapidly and significantly as a result of technological advancements, partnering by our competitors, or continuing market consolidation, and it is uncertain how our markets will evolve. New commerce disruptors or large financial institutions that are making significant investments in research and development may develop similar or superior products and technologies that compete with our Platform. Our existing and potential Customers also may choose to build some of the functionality our Platform provides, potentially limiting or eliminating their demand for our Platform. These competitive pressures in our markets or our failure to compete effectively may result in price reductions, fewer Customers, reduced net revenue, gross profit, and gross margins, increased net losses, and loss of market share. Any failure to meet and address these factors could adversely affect our business, results of operations, and financial condition.

We currently generate significant net revenue from our two largest Customers, Square and Instacart, and the loss or decline in net revenue from either of these Customers could adversely affect our business, results of operations, and financial condition.

A small number of Customers account for a large percentage of our net revenue. In the year ended December 31, 2020, our two largest Customers accounted for an aggregate of approximately        % of our net revenue. Specifically, Square accounted for approximately        % of our net revenue for the year ended December 31, 2020 and Instacart accounted for approximately        % of our net revenue for the year ended December 31, 2020. For the year ended December 31, 2019, we generated approximately 60% of our net revenue from Square and approximately 11% of our net revenue from Instacart.

Although we expect the net revenue from our largest Customers will decrease over time as a percentage of our total net revenue as we generate more net revenue from other Customers, we expect that net revenue from a relatively small group of Customers will continue to account for a significant portion of our net revenue in the near term. In the event that any of our largest Customers do not continue to use our Platform or use our Platform in a more limited capacity, our business, results of operations, and financial condition could be adversely affected. In addition, any publicity associated with the loss of any of these Customers may adversely affect our reputation and could make it more difficult to attract and retain other Customers.

Our Customer contracts generally do not contain long-term commitments from our Customers, and our Customers may be able to terminate their agreements with us prior to expiration of the contract’s term. For example, the current term of our agreement with Square for Square Card expires in December 2024 and the current term of our agreement with Square for Cash App expires in April 2022, and each agreement automatically renews thereafter for successive one-year periods, unless terminated earlier. Accordingly, Square may terminate its agreements prior to the end of their respective terms, and the agreements may not continue for any specific period of time. The current term of our agreement with Instacart expires in September 2023 and may also be terminated by Instacart prior to its expiration; however, the agreement does not provide Instacart with such right to early termination until April 2022. Furthermore, while certain of our customer contracts have transaction volume minimum requirements, others do not have specific minimum volume commitments. There can be no assurance that we will be able to continue our relationships with our Customers on the same or more favorable terms in future periods or that our relationships will continue beyond the terms of our existing contracts

 

23


Table of Contents

with them. In addition, the TPV by Square and Instacart has in the past fluctuated from period to period and may fluctuate or decline in future periods. Our net revenue and results of operations could suffer if, among other things, either of these Customers does not continue to use our products, uses fewer of our products, reduces the volume of transactions, or renegotiates, terminates or fails to renew, or to renew on similar or favorable terms, its agreement with us.

Our recent growth, ongoing changes in our industry, and our transaction mix make it difficult to forecast our net revenue and evaluate our business and future prospects.

We launched our Platform publicly in 2014, and much of our growth has occurred in recent periods. This recent growth makes it difficult to effectively assess or forecast our future prospects, particularly in an evolving industry. Our modern card issuing Platform represents a substantial departure from the traditional card issuing methods and the payment processing solutions offered by traditional providers. While our business has grown rapidly, the market for our Platform, products, and services may not develop as we expect or in a manner that is favorable to our business. As a result of ongoing changes in our evolving industry, our ability to forecast our future results of operations and plan for and model future growth is limited and subject to a number of uncertainties. In particular, forecasting our future results of operations can be challenging because our net revenue depends in part on our Customers’ end users, and our transaction mix adds further complexity. Our transaction mix refers to the proportion of signature debit versus Personal Identification Number, or PIN, debit transactions that make up our overall transaction volume. In general, transactions that require a signature generate higher percentage-based Interchange Fees, while transactions that require a PIN generate lower percentage-based Interchange Fees. Accordingly, we may be unable to prepare accurate internal financial forecasts, and our results of operations in future reporting periods may differ materially from our estimates and forecasts or the expectations of investors or analysts, causing our business to suffer and our Class A common stock trading price to decline.

We have a history of net losses, we anticipate increasing operating expenses in the future, and we may not be able to achieve and maintain profitability.

We have incurred significant net losses in each year since our inception, including net losses of $58.2 million and $             million in the years ended December 31, 2019 and 2020, respectively. We expect to continue to incur net losses for the foreseeable future and we may not achieve or maintain profitability in the future. Because the market for our Platform, products, and services is evolving, it is difficult for us to predict our future results of operations or the limits of our market opportunity. We expect our operating expenses to significantly increase over the next several years as we hire additional personnel, expand our operations and infrastructure, both domestically and internationally, continue to enhance our Platform and develop and expand its capabilities, expand our products and services, and expand and improve our application programming interface, or API. These initiatives may be more costly than we expect and may not result in increased net revenue. In addition, when we become a public company, we will incur additional significant legal, accounting, and other expenses that we did not incur as a private company. Any failure to increase our net revenue sufficiently to keep pace with our initiatives, investments, and other expenses could prevent us from achieving or maintaining profitability or positive cash flow on a consistent basis in future periods. If we fail to achieve or maintain profitability, our business, results of operations, and financial condition could be adversely affected. We cannot assure you that we will ever achieve or sustain profitability and may continue to incur significant losses going forward. Any failure by us to achieve or sustain profitability on a consistent basis could cause the value of our Class A common stock to decline.

From time to time, we may make decisions that may reduce our short-term operating results if we believe those decisions will improve the experiences of our Customers, end users, and other users of our products and services, which we believe will improve our operating results over the long term. These decisions may not be consistent with investors’ expectations and may not produce the long-term benefits that we expect, and this may materially and adversely affect our business.

 

24


Table of Contents

We may experience quarterly fluctuations in our results of operations due to a number of factors that make our future results difficult to predict and could cause our results of operations to fall below analyst or investor expectations.

Our quarterly results of operations may fluctuate from quarter to quarter as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including, but not limited to:

 

   

demand for our Platform, products, and services by our Customers;

 

   

our success in engaging and retaining existing Customers and attracting new Customers;

 

   

changes in transaction mix or volume processed on the different Card Networks used and the resultant mix of interchange and transaction fees earned;

 

   

our success in increasing our Customers’ transaction volumes;

 

   

demand for our Customers’ products by their customers;

 

   

the timing and success of new capabilities by us or by our competitors or any other change in the competitive landscape of our market;

 

   

changes to the terms of and performance under our Customer contracts, including concessions, or payments to Customers resulting from our failure to meet certain service level commitments, which are generally based on our Platform uptime, API response time, and/or transaction success rate;

 

   

reductions in pricing as a result of negotiations with our larger Customers;

 

   

the amount and timing of operating expenses and capital expenditures, as well as entry into operating leases, that we may incur to maintain and expand our business and operations and remain competitive;

 

   

the timing of expenses and recognition of net revenue;

 

   

reduction in certain Customers’ transaction volumes that are subject to seasonal fluctuations;

 

   

security breaches, and technical difficulties involving our Platform or interruptions or disruptions of our Platform;

 

   

adverse litigation judgments, other dispute-related settlement payments, or other litigation-related costs;

 

   

regulatory fines;

 

   

changes in, and continuing uncertainty in relation to, the legislative or regulatory environment;

 

   

the ability of Card Networks to set interchange rates;

 

   

legal and regulatory compliance costs in new and existing markets;

 

   

the timing of hiring new employees;

 

   

the rate of expansion and productivity of our sales force;

 

   

the timing of the grant or vesting of equity awards to employees, directors, or consultants and the recognition of associated expenses;

 

   

fluctuations in foreign currency exchange rates;

 

   

costs and timing of expenses related to the acquisition of businesses, talent, technologies, or intellectual property, including potentially significant amortization costs and possible write-downs;

 

   

the impact of tax charges as a result of non-compliance with federal, state, or local tax regulations in the United States;

 

   

changes to generally accepted accounting standards in the United States;

 

   

health pandemics, such as the COVID-19 pandemic, influenza, and other highly communicable diseases or viruses;

 

25


Table of Contents
   

the impact of market and economic volatility caused by COVID-19 on our business and the businesses of our Customers;

 

   

the impact of COVID-19 on consumer demand and spending patterns; and

 

   

general economic conditions in either domestic or international markets, including conditions resulting from geopolitical uncertainty and instability.

Any one or more of the factors above may result in significant fluctuations in our quarterly results of operations. You should not rely on our past results as an indicator of our future performance.

The variability and unpredictability of our quarterly results of operations or other operating metrics could result in our failure to meet our or investors’ expectations, or those of analysts that cover us, with respect to net revenue or other key metrics for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the trading price of our Class A common stock could fall, and we could face costly lawsuits, including securities class action suits.

The global COVID-19 pandemic could adversely affect our business, results of operations, and financial condition.

In March 2020, the World Health Organization declared the novel strain of coronavirus, COVID-19, a global pandemic. This contagious disease outbreak has continued to spread and the related public health measures, including orders to shelter in place, travel restrictions, and mandated business closures, have adversely affected workforces, organizations, Customers, economies, and financial markets globally, leading to an economic downturn and increased market volatility.

The outbreak, as well as intensified measures undertaken to contain the spread of COVID-19, has impacted our day-to-day operations. Like many other companies, our workforce is currently working remotely and assisting new and existing Customers who are also generally working remotely. All of our currently planned Customer, employee, and industry events have been shifted to virtual-only experiences, and we may deem it advisable to similarly alter, postpone, or cancel additional Customer, vendor, employee, or industry events in the future. Live event attendance and sponsorship is one of the ways we connect with prospective Customers. We rely on events, such as Money20/20, for a portion of our lead generation. Because our solution is technical and requires in-depth discussions around Customer use cases, it can be challenging to acquire new Customers through predominantly online outreach, such as virtual events, email, and targeted ads. COVID-19 and the cancelation or postponement of live events may impair our ability to acquire new Customers and prospects until live events return. In addition, we may incur increased workforce costs, including costs associated with remote working, implementing additional personnel and workplace safety protocols when the majority of our employees return to an office, and workplace or labor claims and disputes related to COVID-19.

The continued spread of COVID-19 could also have an adverse impact on our vendors, partners, and Customers, therefore materially and adversely impacting our business, results of operations, and overall financial performance in future periods. For example, we have experienced, and may continue to experience, a decrease in transaction volumes from certain Customers, particularly those in industries that are heavily impacted by shelter-in-place orders, such as travel; delayed sales cycles, including Customers and prospective Customers delaying contract signing or contract renewals; and delays in launching strategic partnerships and opportunities. These disruptions could continue to adversely affect our business, results of operations, and financial condition, and could have other currently unforeseen negative impacts on us.

In part due to COVID-19, we have also experienced increased transaction volumes for some of our Customers that provide services such as on-demand food and grocery deliveries. As a result, our net revenue growth in recent periods has increased, as additional consumers have shifted to using these services. If this trend in consumer demand and spending patterns slows or reverses as shelter-in-place restrictions ease and as the

 

26


Table of Contents

pandemic subsides, our net revenue growth may be adversely affected. While we have developed and continue to develop plans to help mitigate the potential negative impact of the outbreak on our business, these efforts may not be effective and a protracted economic downturn will likely limit the effectiveness of our mitigation efforts. It is not possible for us to predict the duration or magnitude of the adverse results of COVID-19 and its effects on our business, results of operations, or financial condition at this time. To the extent COVID-19 adversely affects our business, results of operations, and financial condition, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.

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 Interchange Fees, could adversely affect our business.

If we are unable to maintain the quality of our relationships with financial institutions, including Issuing Banks and Card Networks, that provide certain services that are an important part of our product offering, or fail to comply with our contractual requirements with these financial institutions, our business would be adversely affected. We partner with Issuing Banks, who issue payment cards to our Customers and settle payment transactions on such cards. A significant portion of our payment transactions are settled through one Issuing Bank, Sutton Bank. For the years ended December 31, 2019 and 2020, approximately 97% and 96%, respectively, of TPV was settled through Sutton Bank. If Sutton Bank is unable or unwilling to process our transactions for any reason, we may be required to switch some or all of our transaction volume to one or more other Issuing Banks, including to any of the three other U.S. Issuing Banks that we currently settle payment transactions with. Switching a significant portion or all of our payment settlement transaction volumes to another Issuing Bank, including contracting with additional Issuing Banks, would take time and could result in additional costs. We could also lose Customers if we do not have another Issuing Bank who is willing to support such Customers. Diversifying our contractual relationships and operations with Issuing Banks may increase the complexity of our operations and may also lead to increased costs. We also have agreements directly with Card Networks, such as Visa, Mastercard, and Discover Network, that, among other things, provide for certain monetary incentives to us based on the volume of our Customers’ transactions processed through the respective Card Network. If we were to lose our certification with a Card Network, we could lose Customers because our Customers would need to switch to a different Card Network, would have fewer Card Networks to choose from for their card programs, and may be able to obtain more favorable interchange rates from Card Networks that we are not certified with. The Issuing Banks and Card Networks we work with may fail to process transactions, breach their agreements with us, or refuse to renew or renegotiate our agreements with them on terms that are favorable, commercially reasonable, or at all. They might also take actions that could degrade the functionality of our services, impose additional costs or requirements on us, or give preferential treatment to competitive services, including their own services. If we are unsuccessful in establishing, renegotiating, or maintaining relationships with Issuing Banks and Card Networks, our business may be adversely affected.

Our agreements with Issuing Banks and Card Networks require us to comply with Card Network operating rules. The Card Networks set these network rules and have discretion to interpret the rules and change them at any time. While changes in the network rules usually relate to pricing, other types of changes could require us to take certain steps to comply or adapt. For example, we began to issue cards with chips built in when a network rule changed to enable chip and PIN transactions. The termination of the card association registrations held by us or any of the Issuing Banks or any changes to these network rules or how they are interpreted could have a significant impact on our business and financial condition. Any changes to or interpretations of the network rules that are inconsistent with the way we or our Issuing Banks currently operate may require us to make changes to our business that could be costly or difficult to implement. If we fail to make such changes or otherwise resolve the issue with the Card Networks, the Card Networks could fine us or prohibit us from processing payment cards. In addition, violations of the network rules or any failure to maintain good relationships with the Card Networks could impact our ability to receive incentives from them, increase our costs, or otherwise adversely affect our business.

 

27


Table of Contents

Unfavorable conditions in our industry or the global economy could adversely affect our business, results of operations, and financial condition.

Our performance is subject to economic conditions and their impact on levels of spending by businesses and their customers. Our net revenue is dependent on the usage of our Platform, which in turn is influenced by the volume of business our Customers conduct. To the extent that weak economic conditions result in a reduced volume of business for our Customers and prospective Customers, demand for, and use of, our Platform, products, and services may decline. If spending by their customers declines, our Customers could process fewer payments with us or, if our Customers cease to operate, they could stop using our Platform and our products and services altogether. Furthermore, weak economic conditions may make it more difficult to collect on outstanding accounts receivable. If, as a result of a weak economy, our Customers reduce their use of our Platform, or prospective Customers delay adoption or elect not to adopt our Platform, our business, results of operations, and financial condition could be adversely affected.

Performance issues in our Platform or our Platform’s transaction processing could diminish demand for our Platform or products, adversely affect our business and results of operations, and subject us to liabilities.

Our Platform is designed to process high volumes of payment transactions and deliver reports and other information related to those transactions at high processing speeds. Our Customers use our Platform for important aspects of their businesses. Our Issuing Banks use reports and information from our Platform in part to settle card transactions with the Card Networks. Any performance issues, including errors, defects, or disruptions in our Platform or our Platform’s transaction processing, could damage our Customers’ businesses and, in turn, hurt our brand and reputation and erode Customer trust. The risk of performance issues has increased in recent periods due to the significant increase in our transaction volume. This risk of performance issues further increases with new product launches and geographical expansion. We release regular updates to our Platform, which have in the past contained, and may in the future contain, undetected errors, failures, vulnerabilities, and bugs. Additionally, we may experience errors, inaccuracies, or omissions in our processing, reconciling or reporting of transactions. Further, we may be unable to replenish the supply of payment cards issued to our Customers before it is depleted, such that our Customers could run out of cards for a short period of time. Real or perceived errors, failures, or bugs in our Platform or our Platform’s transaction processing could result in negative publicity, loss of or delay in market acceptance of our Platform or our products, loss of competitive position, lower Customer retention, claims by Customers, Card Networks, Issuing Banks, or other partners or vendors for losses sustained by them, or other claims, regulatory fines, or proceedings. In such an event, we may be required, or may choose, for Customer relations or other reasons, to expend additional resources to help correct the problem. In addition, we may not carry insurance sufficient to compensate us for any losses that may result from claims arising from defects or disruptions in our Platform or operations. As a result, our reputation and our brand could be harmed, and our business, results of operations, and financial condition may be adversely affected.

Systems failures and interruptions in the availability of our Platform may adversely affect our business, results of operations, and financial condition.

Our continued growth depends on the efficient operation of our Platform without interruption or degradation of performance. Our business involves processing large numbers of transactions, the movement of large sums of money on an aggregate basis, and the management of large amounts of data, and a system outage or data loss could have a material adverse effect on our business, results of operations, and financial condition. We may experience service interruptions, data loss, outages, and other performance problems due to a variety of factors, including infrastructure changes or failures, introductions of new functionality, human or software errors, capacity constraints, denial-of-service attacks, ransomware attacks, or other security-related incidents. For example, on August 30, 2020, a major internet service and bandwidth provider experienced a significant outage that impacted us as well as a significant number of other services and providers across the internet. During this outage, the functionality of our Platform was affected, including denial of certain Customer transactions and

 

28


Table of Contents

connectivity issues. In some instances, we may not be able to identify the cause or causes of these performance problems immediately or in short order, and we may face difficulties remediating and otherwise responding to any such issues. We may not be able to maintain the level of service uptime and performance needed by our Customers, especially as transaction volumes increase. We have experienced high growth in payment transaction volumes over the past several years and expect such growth may continue for the coming years; however, if we are unable to maintain sufficient processing capacity, Customers could face longer processing times or even downtime. Furthermore, any efforts to further scale the Platform or increase its complexity to handle a larger number or more complicated transactions could result in performance issues, including downtime. If our Platform is unavailable or if Customers are unable to access the Platform within a reasonable amount of time, or at all, our business would be adversely affected. Our Customers rely on the full-time availability of our Platform to process payment transactions, and an outage on our Platform could impair the ability of our Customers to operate their business and generate revenue. Therefore, any system failure, outage, performance problem, or interruption in the availability of our Platform would negatively impact our brand, reputation, and Customer satisfaction, and could subject us to financial penalties and liabilities.

Moreover, we depend on services from various third-party vendors to maintain our infrastructure, including data center facilities and cloud storage platforms. We conduct vendor due diligence; however, if a service provider fails to develop and maintain sufficient internal control processes or fails to provide sufficient capacity to support our Platform or otherwise experiences service outages, such failure could interrupt the operation of our Platform, potentially adversely affecting our Customers or their perception of our Platform’s reliability and adversely affecting the business of Customers using our Platform. Any disruptions in these services, including as a result of actions outside of our control, would significantly impact the continued performance of our Platform. In the future, these services may not be available to us on commercially reasonable terms, or at all. Any loss of the right to use any of these services could result in decreased functionality of our Platform until equivalent technology is either developed by us or, if available from another provider, is identified, obtained, and integrated into our infrastructure. If we do not accurately predict our infrastructure capacity requirements, our Customers could experience service shortfalls. We may also be unable to effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology.

Further, our Customer contracts typically provide for service level commitments. If we suffer extended periods of downtime for our Platform or are otherwise unable to meet these commitments, then we are contractually obligated to provide a service credit, which may be based on a percentage of the transaction volume on the day of an incident or the fees charged on the day of an incident, or it may be based on our overall monthly transaction success rate and the incentive payments or fees from that month. We have experienced incidents requiring us to pay service level credits in the past, such as in January and February 2019 when transactions for one of our Customers were slowed and/or interrupted for several hours. In addition, the performance and availability of the cloud-based solutions that provide cloud infrastructures for our Platform is outside of our control and, therefore, we are not in full control of whether we meet our service level commitments. As a result, our business, results of operations, and financial condition could be adversely affected if we suffer unscheduled downtime that exceeds the service level commitments we have made to our Customers. Any extended service outages could adversely affect our business and reputation and erode Customer trust.

Any of the above circumstances or events may harm our reputation, cause Customers to terminate their agreements with us, impair our ability to renew contracts with Customers and grow our Customer base, subject us to financial penalties and liabilities, and otherwise adversely affect our business, results of operations, and financial condition.

 

29


Table of Contents

We, our Customers, our vendors, and others who use or interact with our Platform obtain and process a large amount of sensitive data. Any real or perceived improper or unauthorized use of, disclosure of, or access to such data could expose us to liability and damage our reputation.

Our operations depend on receiving, storing, processing, and transmitting sensitive information pertaining to our business, employees, Customers, and end users. The confidentiality, security, and integrity of such sensitive business information residing on our systems is important to our business. Any unauthorized access, intrusion, infiltration, network disruption, denial of service, or similar incident could disrupt the integrity, continuity, security, and trust of our systems or data, or the systems or data of our Customers or vendors. These incidents are often difficult to detect and are constantly evolving, and we or our Customers or vendors may face difficulties or delays in identifying or otherwise responding to any incident. Unauthorized parties have attempted and may continue to attempt to gain access to our Platform, systems, or facilities, and those of our Customers, partners, and vendors, through various means and with increasing sophistication. These events could create costly claims and litigation, significant financial liability, regulatory investigations or proceedings, increased regulatory scrutiny, financial sanctions, a loss of confidence in our ability to serve Customers and cause current or potential Customers to choose another service provider, all of which could have a material adverse impact on our business. In addition, we expect to continue to invest significant resources to maintain and enhance our information security and controls or to investigate and remediate any security vulnerabilities. Although we believe that we maintain a robust data security program, including a responsible disclosure program, and that none of the incidents that we have encountered to date have materially impacted us, we cannot be certain that the security measures and procedures we have in place to detect security incidents and protect sensitive data, including protection against unauthorized access and use by our employees, will be successful or sufficient to counter all current and emerging technological risks and threats. The impact of a material event involving our systems and data, or those of our Customers or vendors, could have a material adverse effect on our business, results of operations, and financial condition.

Under Card Network rules and our contracts with our Issuing Banks, if there is a breach of payment card information that we store or that is stored by our Customers or other third parties that we do business with, we could be liable to the Issuing Banks for certain of their costs and expenses. Additionally, if our own confidential business information were improperly disclosed, our business could be materially and adversely affected. The reliability and security of our Platform is a core component of our business. Any perceived or actual breach of security, regardless of how it occurs or the extent of the breach, could have a significant impact on our reputation as a trusted brand, cause us to lose existing Customers, prevent us from obtaining new Customers, require us to expend significant funds to remedy problems caused by breaches and to implement measures to prevent further breaches, and expose us to legal risk and potential liability, including those resulting from governmental or regulatory investigations, class action litigation, and costs associated with remediation, such as fraud monitoring and forensics. Any actual or perceived security breach at a vendor providing services to us or our Customers could have similar effects.

While we maintain cybersecurity insurance, subject to applicable deductibles and policy limitations, our insurance may be insufficient to cover all liabilities incurred by such attacks. We cannot be certain that our insurance coverage will be adequate for privacy, data security, and data protection liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that an insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, premiums, or deductibles could have a material adverse effect on our business, results of operations, and financial condition.

Our business depends on a strong and trusted brand, and any failure to maintain, protect, enhance, and market our brand would hurt our business.

We have developed a strong and trusted brand that has contributed significantly to the success of our business. We believe that maintaining and promoting our brand in a cost-effective manner is important to achieving

 

30


Table of Contents

widespread acceptance of our Platform and the products and services we offer, expanding our base of Customers and end users, and increasing the volume of transactions. Our brand is predicated on the idea that we offer modern payment solutions to our Customers and our Platform helps enable them to successfully operate their businesses. We are dedicated to building and maintaining a Platform our Customers can trust and creating solutions for our Customers who choose to build and grow their businesses with our card programs and other services. Maintaining and promoting our brand will depend largely on our ability to continue to provide a useful, reliable, secure, and innovative Platform, as well as our ability to maintain trust and be a payments processing innovator and leader. We may, from time to time, introduce, or make changes to, our Platform, products, services, privacy practices, or other practices or terms of service that Customers do not like, which may materially and adversely affect our brand. Brand promotion activities may not generate Customer awareness or increase net revenue, and even if they do, any increase in net revenue may not offset the expenses we incur in building our brand. In addition, due to COVID-19 and the restrictions on travel, we are not able to organize certain marketing and promotional events and in-person meetings to facilitate Customer adoption and generate leads with potential Customers. If we fail to successfully promote and maintain our brand or if we incur excessive expense in this effort, our business could be materially and adversely affected.

Harm to our brand can arise from many sources, including failure by us or our partners and vendors to satisfy expectations of service and quality, inadequate protection or misuse of sensitive information, compliance failures and claims, litigation and other claims, and misconduct by our vendors or other counterparties. We may also be the target of incomplete, inaccurate, and misleading or false statements about our company and our business that could damage our brand and deter Customers from adopting our services. Any negative publicity about our company, our industry, the quality and reliability of our Platform, our risk management processes, changes to our products and services, our ability to effectively manage and resolve Customer complaints, our privacy, data protection, and information security practices, litigation, regulatory activity, policy positions, or the experience of our Customers with our Platform, products, and services could adversely affect our reputation and the confidence in and use of our Platform, products, and services. If we do not successfully maintain a strong and trusted brand, our business could be materially and adversely affected.

If we fail to offer high-quality Customer support, our business and reputation will suffer.

Many of our Customers depend on our Customer support team to assist them in launching and deploying our card programs effectively, help them resolve issues quickly, and provide ongoing support. Our direct, ongoing interactions with our Customers help us tailor offerings to them at scale and in the context of their usage. Our Customer support team also helps increase awareness and usage of our Platform while helping Customers address inquiries and issues. If we do not devote sufficient resources or are otherwise unsuccessful in assisting our Customers effectively, it could adversely affect our ability to retain existing Customers and could prevent prospective Customers from adopting our Platform. We may be unable to respond quickly enough to accommodate short-term increases in demand for Customer support. Increased demand for Customer support, without corresponding net revenue, could increase costs and adversely affect our business, results of operations, and financial condition. Our sales are highly dependent on our business reputation and on positive recommendations from Customers. Any failure to maintain high quality Customer support, or a market perception that we do not maintain high quality Customer support, could erode Customer trust and adversely affect our reputation, business, results of operations, and financial condition.

In addition, as we continue to grow our operations and reach a larger and increasingly global Customer base, we need to be able to provide efficient Customer support that meets the needs of Customers on our Platform globally and at scale. The number of Customers and end users using our Platform, the volume of transactions, the products and services we offer, and usage of our Platform by Customers have all grown significantly and this has put additional pressure on our support organization. If we are unable to provide efficient Customer support globally and at scale, our ability to grow our operations may be adversely affected and we may need to hire additional support personnel, potentially adversely affecting our results of operations.

 

31


Table of Contents

If we fail to adapt to rapid technological change and develop enhancements and new capabilities for our Platform, our ability to remain competitive could be impaired.

We compete in an industry that is characterized by rapid technological change, frequent introductions of new products and services, and evolving industry standards and regulatory requirements. Our ability to attract new Customers and increase net revenue from Customers will depend in significant part on our ability to adapt to industry standards, anticipate trends, and continue to enhance our Platform and introduce new programs and capabilities on a timely and secure basis to keep pace with technological developments and Customer expectations. If we are unable to provide enhancements and new programs for our Platform, develop new capabilities that achieve market acceptance, or innovate quickly enough to keep pace with rapid technological developments, our business could be adversely affected. We must also keep pace with changing legal and regulatory regimes that affect our Platform, products, services, and business practices. We may not be successful in developing modifications, enhancements, and improvements, in bringing them to market quickly or cost-effectively in response to market demands, or at modifying our Platform to remain compliant with applicable legal and regulatory requirements.

In addition, because our Platform is designed to operate directly with the Card Networks, Issuing Banks, and general payments ecosystem, we need to continuously modify and enhance our Platform to keep pace with changes in technologies, while maintaining compatibility and legal and regulatory compliance. Any failure of our Platform to continue to operate effectively with third-party infrastructures and technologies could reduce the demand for our Platform, products, or services, result in the dissatisfaction of our Customers, and materially and adversely affect our business.

Our future success depends in part on our ability to expand internationally and drive the adoption of our Platform and products by international Customers. Expanding our business internationally, however, could subject us to new challenges and risks.

In the year ended December 31, 2020, we derived approximately        % of our net revenue from Customers located outside the United States. The future success of our business will depend, in part, on our ability to offer our Platform internationally and expand our international Customer base. While we have been expanding our Platform, products, services and sales efforts internationally, our experience in selling our Platform, products, and services outside of the United States is early. The spread of COVID-19 may also complicate efforts to expand our business internationally by restricting our ability to travel and engage in certain sales and marketing activities abroad. Furthermore, our business model may not be successful or have the same traction outside the United States and we may face additional regulatory hurdles. As a result, our investment in marketing our Platform to these potential Customers may not be successful. If we are unable to increase the net revenue that we derive from international Customers, then our business, results of operations, and financial condition may be adversely affected.

In addition, expansion, whether in our existing or new international markets, will require additional resources and controls, and offering our Platform in new geographic regions often requires substantial expenditures and takes considerable time. We may not be successful enough in these new geographies to recoup our investments in a timely manner or at all. Such expansion could also subject our business to substantial risks, including:

 

   

difficulty in attracting a sufficient number of Customers in a given international market;

 

   

failure to anticipate competitive conditions and competition with market-players that have greater experience in the local markets than we do;

 

   

conformity with applicable business customs, including translation into foreign languages and associated expenses;

 

   

increased costs and difficulty in protecting intellectual property and sensitive data;

 

   

changes to the way we do business as compared with our current operations or a lack of acceptance of our Platform or certain products and services;

 

32


Table of Contents
   

the ability to support and integrate with local Bank Identification Number sponsors and third-party vendors;

 

   

difficulties in staffing and managing foreign operations in an environment of diverse culture, laws, and customs, and other challenges caused by distance;

 

   

language and cultural differences, and the increased travel, infrastructure, and legal and compliance costs associated with global operations;

 

   

difficulties in recruiting and retaining qualified employees and maintaining our company culture;

 

   

difficulty in gaining acceptance from industry self-regulatory bodies;

 

   

compliance with multiple, potentially conflicting and changing governmental laws and regulations, including with respect to payment processing, data privacy, data protection, and information security;

 

   

compliance with U.S. and foreign anti-corruption, anti-bribery, and anti-money laundering laws;

 

   

potential tariffs, sanctions, fines, or other trade restrictions;

 

   

exchange rate risk and Interchange Fee regulation in foreign countries;

 

   

compliance with complex and potentially conflicting and changing laws of taxing jurisdictions where we conduct business and applicable U.S. tax laws; and

 

   

regional economic and political instability.

As a result of these risks, our efforts to expand our global operations may not be successful, potentially limiting our ability to grow our business.

We may incur losses relating to the settlement of payment transactions and use of payment cards issued through our Platform.

We are and will continue to be subject to the risk of losses relating to the day-to-day settlement of payment transactions that is inherent in our business model. Customers deposit a certain amount of pre-funding into their Customer account. However, depending on the model of the card program and the timing of funding and transactions, transactions that exceed the amount of pre-funding in the Customer’s account could be authorized. Customers are ultimately responsible for fulfilling their obligations to fund transactions. However, when a Customer does not have sufficient funds to settle a transaction, we are liable to the Issuing Bank to settle the transaction and may incur losses as a result of claims from the Issuing Bank. We seek to recover such losses from the Customer, but we may not fully recover them if the Customer is unwilling or unable to pay due to their financial condition. Because we are liable to the Issuing Banks, we may also bear the risk of losses if a Customer does not provide payment due to fraudulent or disputed transactions. We are also subject to risk from fraudulent acts of employees or contractors. Although we maintain insurance for certain types of losses, that coverage may be insufficient or limited and may not fully protect against those losses. Additionally, criminals are using increasingly sophisticated methods to engage in illegal activities which they may use to target us, including “skimming,” counterfeit payment cards, and identity theft. A single, significant incident or a series of incidents of fraud or theft involving cards issued through our Platform could result in reputational damage to us, potentially reducing the use and acceptance of our Platform or lead to greater regulation that would increase our compliance costs. Fraudulent activity could also result in the imposition of regulatory sanctions, including significant monetary fines. The foregoing could have a material adverse effect on our business, results of operations, and financial condition.

We depend on our executive officers and other key employees, and the loss of one or more of these employees or an inability to attract and retain other highly skilled employees could adversely affect our business.

Our success depends largely upon the continued services of our executive officers and other key employees. From time to time, there may be changes in our executive management team resulting from the hiring or

 

33


Table of Contents

departure of executives, potentially disrupting our business. Any employment agreements we have with our executive officers or other key personnel do not require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. Additionally, we do not maintain any key person insurance policies. The loss of one or more of our executive officers, especially our Chief Executive Officer, or other key employees could adversely affect our business. Changes in our executive management team may also cause disruptions in, and adverse impacts to, our business.

In addition, to maintain and grow our business, we must attract and retain highly qualified personnel. Competition for highly qualified personnel in the San Francisco Bay Area, where our headquarters is located, and in other locations where we maintain offices, is intense, especially for highly skilled employees and experienced sales professionals. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications and at an appropriate cost, which may be compounded during the COVID-19 pandemic. Any changes to U.S. immigration policies that restrain the flow of technical and professional talent may inhibit our ability to recruit and retain highly qualified employees. Many of the companies we compete with for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached certain legal obligations, resulting in a diversion of time and resources, and potential liability for us or our employees. In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, it may impair our ability to recruit and retain highly skilled employees. If we are not able to add and retain employees effectively, our ability to achieve our strategic objectives will be adversely affected, and our business and growth prospects will be adversely affected. Conversely, additions of executive-level management and large numbers of employees could significantly and adversely impact our culture.

Volatility in or lack of appreciation of the trading price of our Class A common stock may also affect our ability to attract and retain our key employees. Many of our senior personnel and other key employees have become, or will soon become, vested in a substantial amount of stock or stock options. Employees may be more likely to leave us if the shares they own or the shares underlying their vested options or RSUs have significantly appreciated in value relative to the original purchase price of the shares or the exercise price of the options, or conversely, if the exercise price of the options that they hold are significantly above the market price of our Class A common stock. If we do not maintain and continue to develop our corporate culture as we grow and evolve, it could impair our ability to foster the innovation, teamwork, curiosity, and diversity, that we believe is necessary to support our growth.

Exposure to political developments in the United Kingdom, including the United Kingdom’s decision to leave the European Union, could adversely affect us.

On June 23, 2016, a referendum was held on the United Kingdom’s membership in the European Union, or E.U., resulting in a vote in favor of leaving the European Union. Effective as of January 31, 2020, the United Kingdom formally withdrew its membership from the European Union. The United Kingdom’s decision to leave the European Union has created an uncertain political and economic environment in the United Kingdom and across other European Union member states. The political and economic instability created by the United Kingdom’s decision to leave the European Union has caused and may continue to cause volatility in global financial markets and the value of the British Pound or other currencies, including the Euro. In addition, this uncertainty may cause some of our Customers or potential Customers to curtail or delay spending or adoption of our Platform. Depending on the market and regulatory effects of the United Kingdom’s exit from the European Union, it is possible that there may be adverse practical or operational implications on our business. For example, the UK Data Protection Act, which substantially implements the General Data Protection Regulation, or GDPR, became effective in May 2018. It remains unclear, however, how United Kingdom data protection laws or regulations will develop and be interpreted in the medium to longer term, how data transfers to and from the United Kingdom will be regulated, and how those regulations may differ from those in the European Union. While we have taken measures to preemptively address the impact of the United Kingdom’s departure from the European

 

34


Table of Contents

Union by including contingency clauses in our E.U. master service agreements, for example, these may not adequately protect us from adverse implications on our business. Further, the United Kingdom’s exit from the European Union may create increased compliance costs and an uncertain regulatory landscape for offering equity-based incentives to our employees in the United Kingdom. If we are unable to maintain equity-based incentive programs for our employees in the United Kingdom due to the departure of the United Kingdom from the European Union, our business in the United Kingdom may suffer and we may face legal claims from employees in the United Kingdom to whom we previously offered equity-based incentive programs. These and other factors related to the departure of the United Kingdom from the European Union may adversely affect our business, financial condition, and results of operations.

We may face exposure to foreign currency exchange rate fluctuations, and such fluctuations could adversely affect our business, results of operations, and financial condition.

As we continue to expand our global operations, we become more exposed to the effects of fluctuations in currency exchange rates. Our Customer contracts are denominated primarily in U.S. dollars, and therefore the majority of our net revenue is not subject to foreign currency risk. We expect, however, to significantly expand the number of transactions with Customers that are denominated in foreign currencies in the future as we continue to expand our business internationally. We also incur expenses for employee compensation and other operating expenses at our non-U.S. locations in the local currency for such locations. Fluctuations in the exchange rates between the U.S. dollar and other currencies could result in an increase to the U.S. dollar equivalent of such expenses and, as a result, adversely affect our business, results of operations, and financial condition.

We do not currently maintain a program to hedge exposures in foreign currencies. In the future, however, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.

If our estimates or judgments relating to our accounting policies prove to be incorrect, our results of operations could be adversely affected.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates in part on historical experience, market observable inputs, if available, and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of net revenue and expenses that are not readily apparent from other sources. Assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition and accounting for share-based compensation. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our Class A common stock.

We may require additional capital to support our business, and this capital might not be available on acceptable terms, if at all.

We intend to continue to make investments to support our business and may require additional funds. In particular, we may seek additional funds to develop new products and enhance our Platform and existing products, expand our operations, including our sales and marketing organizations and our presence outside of the United States, improve our infrastructure or acquire complementary businesses, technologies, services, products,

 

35


Table of Contents

and other assets. In addition, we may use a portion of our cash to satisfy tax withholding and remittance obligations related to outstanding RSUs. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our Class A common stock and Class B common stock. Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, potentially making it more difficult for us to obtain additional capital and to pursue business opportunities. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth, scale our infrastructure, develop product enhancements, and respond to business challenges could be significantly impaired, and our business, results of operations, and financial condition may be adversely affected.

Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify, divert the attention of key management personnel, disrupt our business, dilute stockholder value, and adversely affect our results of operations and financial condition. We may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions.

We may seek to acquire or invest in businesses, products, or technologies that we believe could complement our Platform, products, and services or expand its breadth, enhance our products and capabilities, expand our geographic reach or Customer base, or otherwise offer growth opportunities. The pursuit of potential investments or acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable opportunities, whether or not they are consummated. Any acquisition, investment, or business relationship may result in unforeseen operating difficulties and expenditures. In addition, we have limited experience in investing in and acquiring other businesses. If we acquire additional businesses, we may not be able to successfully integrate the acquired personnel, operations, and technologies, or effectively manage the combined business following the acquisition. Specifically, we may not successfully evaluate or utilize the acquired technology or personnel or accurately forecast the financial impact of an acquisition transaction, including accounting charges. Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized or we may be exposed to unknown risks or liabilities.

We may not be able to find and identify desirable acquisition targets or we may not be successful in entering into an agreement with any one target. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, potentially adversely affecting our results of operations. In addition, if an acquired business fails to meet our expectations, our business, results of operations, and financial condition may suffer.

We have in the past made, and may in the future seek to make, strategic investments in early stage companies developing products or technologies that we believe could complement our Platform or expand its breadth, enhance our technical capabilities, or otherwise offer growth opportunities. These investments may be in early stage private companies for restricted stock. Such investments are generally illiquid and may never generate value. Further, we may invest in companies that do not succeed, and our investments may lose all or some of their value.

We may be subject to litigation for a variety of claims, which could harm our reputation and adversely affect our business, results of operations, and financial condition.

In the ordinary course of business, we may be involved in and subject to litigation for a variety of claims or disputes and receive regulatory inquiries. These claims, lawsuits, and proceedings could include labor and employment, wage and hour, commercial, antitrust, alleged securities law violations or other investor claims, and other matters. The number and significance of these potential claims and disputes may increase as our business expands. Further, our general liability insurance may not cover all potential claims made against us or be sufficient to indemnify us for all liability that may be imposed. Any claim against us, regardless of its merit,

 

36


Table of Contents

could be costly, divert management’s attention and operational resources, and harm our reputation. As litigation is inherently unpredictable, we cannot assure you that any potential claims or disputes will not have a material adverse effect on our business, results of operations, and financial condition.

Risks Relating to Regulation

Our business is subject to extensive regulation and oversight in a variety of areas, directly and indirectly through our relationships with Issuing Banks and Card Networks, which regulations are subject to change and to uncertain interpretation.

We, our vendors and our partners are subject to a wide variety of state, federal, and international laws, regulations, and industry standards in the United States and in other countries where we operate both directly and indirectly through our relationships with Issuing Banks and Card Networks. These laws, regulations, industry standards, and rules govern numerous areas important to our business. While we currently operate our business in an effort to ensure our business itself is not subject to extensive regulation, the Issuing Banks and Card Networks that we partner with operate in a highly regulated landscape, and there is a risk that those regulations could become applicable to us. We are directly subject to regulation in areas including privacy, data security, data protection, and anti-bribery, and our contractual relationships with Issuing Banks and Card Networks subject us to additional regulations including those relating to payments services (such as payment processing and settlement services), consumer protection, anti-money laundering, anti-bribery, escheatment, international sanctions regimes, data privacy and security, intellectual property, and compliance with the Payment Card Industry Data Security Standard, or PCI DSS, a data security standard obligating companies that process, store, or transmit payment card information to maintain security measures designed to protect cardholder data.

The laws, rules, regulations, and standards applicable to our business are enforced by multiple authorities and governing bodies in the United States, including federal agencies, self-regulatory organizations, and numerous state agencies. Outside of the United States, we may be subject to additional regulators. As we expand into new jurisdictions, or expand our Platform and product offerings in existing jurisdictions, the number of foreign regulations and regulators governing our business will expand as well. In addition, as our business and Platform continue to develop and expand, we may become subject to additional rules, regulations, and industry standards. We may not always accurately predict the scope or applicability of certain regulations to our business, particularly as we expand into new areas of operations, which could have a significant negative effect on our existing business and our ability to pursue future plans.

In addition to laws and regulations that apply directly to us, we are contractually subject to certain laws and regulations through our relationships with Issuing Banks and Card Networks, which operate in a highly regulated industry. Legislative and regulatory changes could prompt our Issuing Banks to alter the extent or the terms of their dealings with us in ways that may have adverse consequences for our business. For example, due to our relationships with certain Issuing Banks and Card Networks, we may be subject to indirect supervision and examination by the Consumer Financial Protection Bureau, or CFPB, which is engaged in rulemaking and regulation of the payments industry, including, among other things, the regulation of prepaid cards. While recent reform in the payment industry, such as the formation of the CFPB, has focused on individual consumer protection, legislatures continue to consider whether to include business customers, especially smaller business customers, within the scope of these regulations. As a result, new or expanded regulation focusing on business customers or changes in interpretation or enforcement of regulations may have an adverse effect on our business, results of operations, and financial condition due to increased compliance costs and new restrictions affecting the terms we offer our Platform or our products and services under.

A majority of our net revenue is derived from Interchange Fees and we expect Interchange Fees to continue to represent a significant percentage of our total net revenue in the near term. The amount of Interchange Fees we earn is highly dependent on the interchange rates that the Card Networks set and adjust. From time to time, Card Networks change the Interchange Fees and assessments they charge for transactions processed using their

 

37


Table of Contents

networks. Interchange Fees or assessments are also subject to change from time to time due to government regulation. Interchange Fees are the subject of intense legal and regulatory scrutiny and competitive pressures in the electronic payments industry. For example, the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which limits Interchange Fees, may restrict or otherwise impact the way we do business or limit our ability to charge certain fees to Customers. Issuing Banks that are exempt from the Durbin Amendment are able to access higher interchange rates. As a result, to maximize our Interchange Fees, we currently only contract with Issuing Banks that are exempt from the Durbin Amendment when we provide program management services. Changes in regulation or additional rulemaking may adversely affect the way we conduct our business or result in additional compliance obligations and expense for our business and limitations on net revenue. Interchange Fee regulation also exists in other countries where our Customers use payment cards and such regulation could adversely affect our business in other foreign regions. Any changes in the Interchange Fees associated with our Customers’ card transactions could adversely affect our business, results of operations, and financial condition.

Many of these laws and regulations are evolving, unclear, and inconsistent across various jurisdictions, and ensuring compliance with them is difficult and costly. With increasing frequency, federal and state regulators are holding businesses in the payments industry to higher standards of training, monitoring, and compliance, including monitoring for possible violations of laws by our Customers and people who do business with our Customers while using our Platform or products. If we fail to comply with laws and regulations applicable to our business in a timely and appropriate manner, we may be subject to litigation or regulatory proceedings, we may have to pay fines and penalties, and our client relationships and reputation may be adversely affected, which could have a material adverse effect on our business, results of operations, and financial condition.

Regulations and industry standards related to privacy and data protection could adversely affect our ability to effectively provide our services.

Governmental bodies and industry organizations in the United States and abroad have adopted, or are considering adopting, laws and regulations restricting the use of, and requiring safeguarding of, personal information. For example, in the United States, all financial institutions must undertake certain steps to ensure the privacy and security of consumer financial information. Further, the California Consumer Privacy Act, or CCPA, became effective on January 1, 2020 and imposes additional restrictions on the collection, processing, and disclosure of personal information, including imposing increased penalties on data privacy incidents. Additionally, a new privacy law, the California Privacy Rights Act, or CPRA, creates additional obligations relating to personal information that take effect on January 1, 2023 (with certain provisions having retroactive effect to January 1, 2022). The CPRA’s implementing regulations are expected on or before July 1, 2022, and enforcement is scheduled to begin July 1, 2023. We will continue to monitor developments related to the CPRA and anticipate additional costs and expenses associated with CPRA compliance. Other U.S. states also are considering omnibus privacy legislation and industry organizations regularly adopt and advocate for new standards in these areas. Many obligations under these other laws and legislative proposals remain uncertain, and we cannot fully predict their impact on our business. If we fail to comply with any of these laws or standards, we may be subject to investigations, enforcement actions, civil litigation, fines and other penalties, all of which may generate negative publicity and have a negative impact on our business.

In the European Economic Area, or EEA, the GDPR, which became effective in 2018, extends the scope of European Union, or E.U., data protection law to all companies processing personal data of E.U. residents, regardless of the company’s location, and requires companies to meet stringent requirements regarding the handling of personal data. The GDPR also imposes some limitations on international transfers of personal data. The GDPR imposes substantial obligations and risk upon our business and provides for significant penalties in the event of any non-compliance. Administrative fines under the GDPR can amount up to 20 million Euros or four percent of a company group’s annual global turnover, whichever is higher. Further, following the exit of the United Kingdom, or U.K., from the E.U., it remains unclear how the U.K. Data Protection Act, which substantially implements the GDPR in the U.K., and other U.K. data protection laws or regulations will develop

 

38


Table of Contents

in the medium to longer term and how data transfers to and from the U.K. will be regulated. We have incurred substantial expense in complying with new data protection legal frameworks and we may be required to make additional, significant changes in our business operations, all of which may adversely affect our revenue and our business overall. Additionally, because these new regimes lack a substantial enforcement history, we are unable to predict how emerging standards may be applied to us.

Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States. On July 16, 2020, the Court of Justice of the European Union invalidated the E.U.-U.S. Privacy Shield, eliminating one of the mechanisms we had relied on to legitimize E.U.-U.S. data transfers. The court, however, approved an alternative transfer mechanism that we rely on known as the standard contractual clauses provided additional safeguards are in place. We are in the process of assessing this decision and its impact on our data transfer mechanisms. It is possible that the decision will restrict the ability to transfer personal data from the E.U. to the United States. We (and many other companies) may need to implement different or additional measures to establish or maintain legitimate means for the transfer and receipt of personal data from the E.U. to the U.S., and we may, in addition to other impacts, experience additional costs associated with increased compliance burdens, and we and our Customers face the potential for regulators to apply different standards to the transfer of personal data from the E.U. and Switzerland to the U.S., and to block, or require ad hoc verification of measures taken with respect to, certain personal data transfers from the E.U. and Switzerland to the United States. Any inability to transfer personal data from the E.U. to the United States in compliance with data protection laws or otherwise comply with requirements in this rapidly changing environment may impede our ability to attract and retain Customers unless and until we build out an E.U.-compliant data processing center. These restrictions may adversely affect our business and financial position.

Some countries are also considering or have passed legislation requiring local storage and processing of data, or similar requirements, potentially increasing the cost and complexity of our operations.

In connection with providing services to our Customers, we are required by certain self-regulatory frameworks and contractual arrangements with Card Networks and Issuing Banks to provide assurances regarding the confidentiality and security of non-public consumer information, including the PCI DSS. Further, certain Customers increasingly expect us to comply with more stringent privacy, data protection and information security requirements than those imposed by laws, regulations or self-regulatory requirements, and we may be obligated contractually to comply with additional or different standards relating to our handling or protection of data on or by our offerings. The compliance standards relate to our infrastructure, components, and operational procedures designed to safeguard the confidentiality and security of non-public consumer personal information received from our Customers in the course of providing services. Our ability to maintain compliance with these standards and meet our Customers’ requirements may affect our ability to attract and maintain business in the future.

If we fail to comply with these standards or Customer requirements, or are alleged to have done so, we could be exposed to suits for breach of contract, potentially in addition to governmental proceedings. In addition, our Customer relationships and reputation could be adversely affected, and we could be inhibited in our ability to obtain new Customers. If more restrictive or burdensome laws, rules, or regulations related to privacy, data protection, or information security are adopted by authorities in the future on the federal or state level or internationally, or if existing laws, rules, or regulations become subject to new or differing interpretations or enforcement, or if we become bound by additional obligations to our Customers relating to privacy, data protection, or information security, including any additional compliance standards relating to non-public consumer personal information, our compliance and operational costs may increase, our opportunities for growth may be curtailed by our compliance capabilities or reputational harm, we may find it necessary or appropriate to modify our data processing practices or policies or otherwise restrict our operations, and our potential liability in connection with breaches or incidents relating to privacy, data protection, and information security may increase, all of which could have a material adverse effect on our business, results of operations, and financial condition.

 

39


Table of Contents

There may continue to be changes in interpretations of existing laws and regulations, or new proposed laws, regulations, industry standards, and other obligations concerning privacy, data protection and information security, which could impair our or our Customers’ ability to collect, use or disclose information relating to consumers, which could decrease demand for our offerings, increase our costs and impair our ability to maintain and grow our Customer base and increase our revenue. Because the interpretation and application of many existing and emerging laws and regulations relating to privacy, data protection and information security, along with industry standards, are uncertain, it is possible that these laws and regulations may be interpreted and applied in new ways that are, or are alleged to be, inconsistent with our data management practices or the features of our products, and we could face fines, lawsuits, regulatory investigations and other claims and penalties, and we could be required to fundamentally change our products or our business practices, any of which could have an adverse effect on our business. Any inability to adequately address privacy, data protection and information security concerns, even if unfounded, or any actual or perceived failure to comply with applicable privacy, data protection or information security laws, regulations, standards and other obligations, could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, standards and policies that are applicable to the businesses of our Customers may limit the use and adoption of, and reduce the overall demand for, our Platform and our products and services.

Additionally, if third parties we work with, such as our partners or vendors, violate applicable laws or our policies, such violations may also put information we process at risk and could in turn adversely affect our business, reputation, financial condition, or results of operations.

We are subject to anti-corruption, anti-bribery, and similar laws, and non-compliance with such laws can subject us to criminal penalties or significant fines and adversely affect our business and reputation.

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 USA PATRIOT Act, the U.K. Bribery Act 2010, and other anti-corruption, anti-bribery, and anti-money laundering laws in countries where we conduct activities. Anti-corruption and anti-bribery laws have been interpreted broadly and enforced aggressively in recent years, and prohibit companies and their employees and agents from promising, authorizing, making, or offering improper payments or other benefits to government officials and others in the private sector to influence official action, direct business to any person, gain any improper advantage, or obtain or retain business. As we increase our international sales and business, our risks under these laws may increase.

In addition, in the future we may use third parties to conduct business on our behalf abroad. We or such future third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities, and we can be held liable for the corrupt or other illegal activities of such future third-party intermediaries and our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities. We have implemented an anti-corruption compliance program but cannot assure you that all our employees and agents, as well as those companies we outsource certain of our business operations to, will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Any violation of the FCPA, other applicable anti-corruption laws, or anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, prosecutions, loss of export privileges, suspension or debarment from U.S. government contracts, substantial diversion of management’s attention, significant legal fees and fines, settlements, damages, severe criminal or civil sanctions, penalties or injunctions against us, our officers or our employees, disgorgement of profits, and other sanctions, enforcement actions and remedial measures, and prohibitions on the conduct of our business, any of which could have a materially adverse effect on our reputation, business, trading price, results of operations, financial condition and prospects.

 

40


Table of Contents

We may be subject to governmental export controls and economic sanctions regulations that could impair our ability to compete in international markets and could subject us to liability if we are not in compliance with applicable laws.

Certain of our products and services may be subject to export control and economic sanctions regulations, including the U.S. Export Administration Regulations, and various economic and trade sanctions regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control. Exports of our products and the provision of our services must be made in compliance with these laws and regulations. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including: the possible loss of export privileges; fines imposed on us and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees or managers.

In addition, changes in applicable export or economic sanctions regulations may create delays in the introduction and deployment of our Platform, products, and services in international markets, or, in some cases, prevent the use of our Platform and products or provision of our services in certain countries or with certain end users. Any change in export or economic sanctions regulations, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons, or technologies targeted by such regulations, could also result in decreased use of our Platform, products, and services or in our decreased ability to provide our products and services to existing or prospective Customers with international operations. Any decreased use of our Platform, products, or services or limitation on our ability to provide our Platform, products, or services could adversely affect our business, results of operations, and financial condition.

Further, we incorporate encryption technology into certain of our products. Various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our Customers’ ability to use our products in those countries if our products are subject to such laws and regulations. While we believe our encryption products meet certain exceptions that reduce the scope of export control restrictions applicable to such products, these exceptions may be determined not to apply to our encryption products and our products and underlying technology may become subject to export control restrictions. Governmental regulation of encryption technology and regulation of exports of encryption products, or our failure to obtain required approval for our products, when applicable, could adversely affect our international sales and net revenue. If we were required to comply with regulatory requirements regarding the export of our Platform and products and provision of our services, including with respect to new releases of our products and services, we may experience delays introducing our Platform in international markets, our Customers with international operations may experience difficulty deploying our Platform and products and using our services, or, in some cases, we may be prevented from exporting our Platform or products or providing our services to some countries altogether.

We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.

In recent periods, we have experienced rapid growth, and this growth has placed considerable strain on our IT and settlement operations systems, processes, and personnel. As a result of monitoring our internal controls for the year ended December 31, 2019, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness that we identified occurred because we had inadequate processes and controls to ensure the timely reconciliations of certain customer-related settlement bank accounts.

To address this material weakness, we are deploying additional engineering, and settlement operations personnel and are implementing process level and monitoring controls to ensure timely reconciliation of these customer-

 

41


Table of Contents

related settlement bank accounts. We will not be able to sufficiently remediate these control deficiencies until these steps have been completed and the controls have been operating effectively for a sufficient period of time. While we are undertaking efforts to remediate this material weakness, we cannot predict the success of such efforts or the outcome of our assessment of the remediation efforts at this time. We can give no assurance that our efforts will remediate this deficiency in internal control over financial reporting or that additional material weaknesses in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our consolidated financial statements that could result in a restatement of our financial statements, and could cause us to fail to meet our reporting obligations, any of which could diminish investor confidence in us and cause a decline in the price of our Class A common stock.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. For example, as we have prepared to become a public company, we have worked to improve the controls around our key accounting processes and our quarterly close process, we have implemented a number of new systems to supplement our core enterprise resource planning system as part of our control environment, and we have hired additional accounting and finance personnel to help us implement these processes and controls. As a result of monitoring our internal controls for the year ended December 31, 2019, we identified a material weakness in our internal control over financial reporting. To address this material weakness, we are deploying additional engineering, and settlement operations personnel and are implementing process level and monitoring controls to ensure timely reconciliation of these customer-related settlement bank accounts.

To maintain and improve the effectiveness of our disclosure controls and procedures and remediate a material weakness in our internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight. If any of these new or improved controls and systems do not perform as expected, we may experience material weaknesses in our controls or we may be unable to remediate the existing material weakness in our controls as discussed in “—We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.”

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, additional deficiencies in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could adversely affect our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective

 

42


Table of Contents

disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on                . We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. In addition, as an emerging growth company, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an emerging growth company. If our internal control over financial reporting is not effective, our independent registered public accounting firm may issue an adverse report. As a public company, we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 10-K.

Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our results of operations.

A change in accounting standards or practices may have a significant effect on our results of operations and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported results of operations or the way we conduct our business.

Adoption of these types of accounting standards and any difficulties in implementation of changes in accounting principles, including the ability to modify our accounting systems, could cause us to fail to meet our financial reporting obligations, potentially resulting in regulatory discipline and weakening investors’ confidence in us.

We could be required to collect additional sales, value added or similar taxes or be subject to other tax liabilities that may increase the costs our Customers would have to pay for our solutions and adversely affect our results of operations.

We have not collected sales, value added or similar indirect taxes in all jurisdictions in which we have sales. One or more jurisdictions may seek to impose incremental or new sales, value added or other indirect tax collection obligations on us. Additionally, the Supreme Court of the United States ruled in South Dakota v. Wayfair, Inc. et al, or Wayfair, that online sellers can be required to collect sales and use tax despite not having a physical presence in the buyer’s state. In response to Wayfair, or otherwise, states or local governments may adopt, or begin to enforce, laws requiring us to calculate, collect and remit taxes on sales in their jurisdictions. A successful assertion by one or more states, or foreign jurisdictions, requiring us to collect taxes where we presently do not do so, or to collect more taxes in a jurisdiction in which we currently do collect some taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The requirement to collect sales, value added or similar indirect taxes by foreign, state or local governments for sellers that do not have a physical presence in the jurisdiction could also create additional administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on our competitors, and decrease our future sales, which could have a material adverse effect on our business and results of operations.

Changes in tax laws or regulations could have a material adverse effect on our business, results of operations, and financial conditions.

The rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service, the U.S. Department of the Treasury, and state and local tax authorities. Changes in U.S. tax laws or their interpretations (which may have retroactive application) could materially increase the amount of taxes we owe, thereby negatively impacting our results of

 

43


Table of Contents

operations as well as our cash flows from operations. Furthermore, our implementation of new practices and processes designed to comply with changing tax laws and regulations could require us to make substantial changes to our business practices, allocate additional resources, and increase our costs, potentially negatively affecting our business, results of operations, and financial condition.

As we grow internationally, we may also be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws, or revised interpretations of existing tax laws and precedents, potentially adversely affecting our liquidity and results of operations. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest, and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could adversely affect us and our results of operations.

We may have exposure to greater-than-anticipated tax liabilities, which may materially and adversely affect our business, results of operations, and financial condition.

The determination of our worldwide provision for income taxes, value-added taxes, and other tax liabilities requires estimation and significant judgment, and there are many transactions and calculations where the ultimate tax determination is uncertain. Like many other multinational corporations, we are subject to tax in multiple U.S. and foreign tax jurisdictions. Our determination of our tax liabilities is always subject to audit and review by applicable domestic and foreign tax authorities. Any adverse outcome of any such audit or review could have a negative effect on our business and the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our results of operations and financial condition in the periods for which such determination is made. While we have established reserves based on assumptions and estimates that we believe are reasonable to cover such eventualities, these reserves may prove to be insufficient.

In addition, our future income taxes could be adversely affected by earnings being lower than anticipated, or by the incurrence of losses, in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates; by changes in the valuation of our deferred tax assets and liabilities, as a result of gains on our foreign exchange risk management program; or changes in tax laws, regulations, or accounting principles, as well as certain discrete items.

Various levels of government, such as U.S. federal and state legislatures, and international organizations, such as the Organization for Economic Co-operation and Development, are increasingly focused on tax reform and other legislative or regulatory action to increase tax revenue. Any such tax reform or other legislative or regulatory actions could increase our effective tax rate, which may materially and adversely affect our business, financial condition, and results of operations.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

We have incurred substantial net operating losses, or NOLs, during our history. In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” (generally defined as a greater than 50-percentage-point cumulative change (by value) in the equity ownership of certain stockholders over a rolling three-year period) is subject to limitations on its ability to utilize its pre-change NOLs to offset post-change taxable income. We do not believe our existing NOLs are subject to limitation; however, if we have undergone previous ownership changes, or if we undergo an ownership change in the future, or in connection with this offering, our ability to utilize NOLs could be limited by Section 382 of the Code and/or analogous provisions of applicable state tax law in states where we have incurred NOLs for state income tax purposes. Future changes in our stock ownership, some of which may be outside of our control, could result in an ownership change under these rules.

 

44


Table of Contents

In addition, the amount of NOLs arising in taxable years beginning after December 31, 2017 that we are permitted to deduct in a taxable year beginning after December 31, 2020 is limited to 80% of our taxable income in each such year to which the NOLs are applied, where taxable income for such year is determined without regard to the NOL deduction itself, and such NOLs may be carried forward indefinitely. NOLs generated in taxable years beginning on or prior to December 31, 2017, however, may be carried forward for only 20 years, but are not subject to the 80% limitation. Our NOLs may also be subject to limitations under state law. For example, California recently enacted legislation suspending the use of NOLs for taxable years 2020, 2021 and 2022 for many taxpayers. There is a risk that due to legislative or regulatory changes, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs, whether or not we attain profitability.

Furthermore, our ability to utilize our NOLs is conditioned upon our becoming profitable in the future and generating U.S. federal taxable income. Since we do not know whether or when we will generate the U.S. federal taxable income necessary to utilize our remaining NOLs, the portion of our NOLs that was generated in taxable years beginning on or prior to December 31, 2017 could expire unused.

Risks Relating to Intellectual Property

If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, generate reduced net revenue, and incur costly litigation to protect our rights.

Our success depends, in part, upon protecting our proprietary information and technology. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws, and contractual restrictions to establish and protect our proprietary rights. The steps we take to protect our intellectual property, however, may be inadequate. We cannot assure you that any patents or trademarks will be issued with respect to our currently pending patent and trademark applications in a manner that gives us adequate defensive protection or competitive advantages, if at all, or that any patents or trademarks issued to us will not be challenged, invalidated, or circumvented. Our currently issued patents and trademarks and any patents or trademarks that may be issued in the future with respect to pending or future applications may not provide sufficiently broad protection, or they may not prove to be enforceable in actions against alleged infringers. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our Platform, or certain aspects of our Platform, and use information that we regard as proprietary to create products that compete with our Platform. Some license provisions protecting against unauthorized use, copying, transfer, and disclosure of our Platform, or certain aspects of our Platform, may be unenforceable under the laws of certain jurisdictions and foreign countries. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States, and mechanisms for enforcement of intellectual property rights in some foreign countries may be inadequate. To the extent we continue to expand our international activities, our exposure to unauthorized copying and use of our Platform, or certain aspects of our Platform, and proprietary information may increase. Further, competitors, foreign governments, foreign government-backed actors, criminals, or other third parties may gain unauthorized access to our proprietary information and technology. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our technology and intellectual property.

We also rely in part on trade secrets, proprietary know-how, and other confidential information to maintain our competitive position. Although we enter into confidentiality and invention assignment agreements with our employees, consultants, and contractors and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances, no assurance can be given that these agreements will be effective in controlling access to and distribution of our Platform, or certain aspects of our Platform, and proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our Platform.

 

45


Table of Contents

To protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights, and we may not be able to detect infringement by third parties. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Such litigation could be costly, time consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our Platform, impair the functionality of our Platform, delay introductions of new capabilities, result in our substituting inferior or more costly technologies into our Platform, or injure our reputation. In addition, we may be required to license additional technology from third parties to develop and market new capabilities, and we cannot assure you that we could license that technology on commercially reasonable terms or at all, and our inability to license this technology could impair our ability to compete.

Our use of open source software could negatively affect our ability to sell our products and subject us to possible litigation.

Our Platform incorporates open source software, and we expect to continue to incorporate open source software in our products and Platform in the future. Few of the licenses applicable to open source software have been interpreted by courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products and Platform. If we fail to comply with open source licenses, we may be subject to certain requirements, including requirements that we offer our products that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating, or using the open source software and that we license such modifications or derivative works under the terms of applicable open source licenses. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from generating net revenue from Customers using products that contained the open source software, and required to comply with onerous conditions or restrictions on these products. In any of these events, we and our Customers could be required to seek licenses from third parties to continue offering our products and operating our Platform and to re-engineer our products or Platform or discontinue offering our products to Customers in the event re-engineering cannot be accomplished on a timely basis. Any of the foregoing could require us to devote additional research and development resources to re-engineer our products or Platform, could result in Customer dissatisfaction, and may adversely affect our business, results of operations, and financial condition.

We may be accused of infringing the intellectual property rights of third parties.

We may be accused of infringing intellectual property or other proprietary rights of third parties, including their copyrights, trademarks, or patents, or improperly using or disclosing their trade secrets, or otherwise infringing or violating their proprietary rights. The costs of supporting any litigation or disputes related to such claims can be considerable, and we cannot assure you that we will achieve a favorable outcome of any such claim. If any such claim is valid, we may be compelled to cease our use of such intellectual property or other proprietary rights and pay damages, potentially adversely affecting our business. Even if such claims were not valid, defending them could be expensive and distract our management team, adversely affecting our results of operations.

Although we require our employees to not use the proprietary information or know-how of others in their work for us and we are not currently subject to any claims that they have done so, we may in the future become subject to claims that these employees have divulged, or we have used, proprietary information of these employees’ former employers. Litigation may be necessary to defend against these claims. If we are unable to successfully defend any such claims, we may be required to pay monetary damages and to discontinue our commercialization of certain solutions. In addition, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper our ability to develop new solutions and features for our

 

46


Table of Contents

existing solutions, which could severely weaken our business. Even if we are successful in defending against these claims, litigation efforts are costly, time-consuming and a significant distraction to management.

We currently have a number of agreements in effect pursuant to which we have agreed to defend, indemnify, and hold harmless our Customers and other partners from damages and costs arising from the infringement or claimed infringement by our solutions of third-party patents or other intellectual property rights, which may include patents, copyrights, trademarks, or trade secrets. The scope of these indemnity obligations varies, but may, in some instances, include indemnification for damages and expenses, including attorneys’ fees. Our insurance may not cover all intellectual property infringement claims. A claim that one of our solutions infringes a third party’s intellectual property rights, even if untrue, could damage our relationships with our Customers, may deter future Customers from purchasing our solutions, and could expose us to costly litigation and settlement expenses. Even if we are not a party to any litigation between a Customer and a third party relating to infringement by our solutions, an adverse outcome in any such litigation could make it more difficult for us to defend our solutions against intellectual property infringement claims in any subsequent litigation where we are a named party. Any of these results could harm our brand and adversely affect our results of operations.

Risks Relating to Our Initial Public Offering and Ownership of Our Common Stock

There has been no prior public market for our Class A common stock, the trading price of our Class A common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

Prior to this offering, there has been no public market for shares of our Class A common stock. The initial public offering price of our Class A common stock will be determined through negotiation among the underwriters and us and may vary from the trading price of our Class A common stock following this offering. The market prices of the securities of other newly public companies have historically been highly volatile and markets in general have been highly volatile in light of COVID-19. The trading price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

   

overall performance of the equity markets and/or publicly-listed technology and fintech companies;

 

   

actual or anticipated fluctuations in our net revenue or other operating metrics;

 

   

our actual or anticipated operating performance and the operating performance of our competitors;

 

   

the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;

 

   

failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet the estimates or the expectations of investors;

 

   

the economy as a whole and market conditions in our industry;

 

   

rumors and market speculation involving us or other companies in our industry;

 

   

announcements by us or our competitors of significant innovations, new products, services, or capabilities, acquisitions, strategic partnerships or investments, joint ventures, or capital commitments;

 

   

new laws or regulations or new interpretations of existing laws or regulations applicable to our business, including those related to data privacy and cybersecurity in the United States or globally;

 

   

lawsuits threatened or filed against us;

 

   

actual or perceived privacy or data security incidents;

 

   

developments or disputes concerning our intellectual property or other proprietary rights;

 

47


Table of Contents
   

announced or completed acquisitions of businesses, products, services, or technologies by us or our competitors;

 

   

changes in accounting standards, policies, guidelines, interpretations, or principles;

 

   

any major change in our board of directors, management, or key personnel;

 

   

other events or factors, including those resulting from war, incidents of terrorism, pandemics (including the COVID-19 pandemic), or elections (including the upcoming U.S. presidential election), or responses to these events;

 

   

the expiration of contractual lock-up or market standoff agreements; and

 

   

sales of additional shares of our Class A common stock by us or our stockholders.

In addition, stock markets, and the market for technology and fintech companies in particular, have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Often, trading prices of many companies have fluctuated in ways unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business, results of operations, and financial condition.

Moreover, because of these fluctuations, comparing our results of operations on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our net revenue or results of operations fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the trading price of our Class A common stock could decline substantially. Such a trading price decline could occur even when we have met any previously publicly stated net revenue or earnings forecasts that we may provide.

The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to this offering, including our directors, executive officers, and their respective affiliates. This ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval, and that may depress the trading price of our Class A common stock.

Our Class B common stock has                votes per share, and our Class A common stock, which is the stock we are offering in this offering, has one vote per share. Following this offering, our directors, executive officers, and their affiliates, will beneficially own in the aggregate                % of the voting power of our capital stock as of December 31, 2020. Because of the                 -to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively could continue to control a majority of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval until the                anniversary of the date of this prospectus, when all outstanding shares of Class A common stock and Class B common stock will convert automatically into shares of a single class of common stock. This concentrated control may limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this concentrated control may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may believe are in your best interest as one of our stockholders.

Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes. The

 

48


Table of Contents

conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. As a result, it is possible that one or more of the persons or entities holding our Class B common stock could gain significant voting control as other holders of Class B common stock sell or otherwise convert their shares into Class A common stock.

We cannot predict the effect our dual class structure may have on the trading price of our Class A common stock.

We cannot predict whether our dual class structure will result in a lower or more volatile trading price of our Class A common stock, adverse publicity, or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indices. In July 2017, FTSE Russell announced that it would require new constituents of its indices to have greater than 5% of the company’s voting rights in the hands of public stockholders, and S&P Dow Jones announced that it would no longer admit companies with multiple-class share structures to certain of its indices. Affected indices include the Russell 2000 and the S&P 500, S&P MidCap 400, and S&P SmallCap 600, which together make up the S&P Composite 1500. Under such announced policies, the dual class structure of our common stock would make us ineligible for inclusion in certain indices and, as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track those indices would not invest in our Class A common stock. These policies are relatively new and it is unclear what effect, if any, they will have or continue to have on the valuations of publicly traded companies excluded from such indices, but it is possible that they may depress valuations, as compared to similar companies that are included. Because of the dual class structure of our common stock, we will likely be excluded from certain indices and we cannot assure you that other stock indices will not take similar actions. Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from certain stock indices would likely preclude investment by many of these funds and could make our Class A common stock less attractive to other investors. As a result, the trading price of our Class A common stock could be adversely affected.

An active trading market for our Class A common stock may never develop or be sustained.

We intend to apply to list our Class A common stock on                , under the symbol “MQ.” However, there has been no prior public trading market for our Class A common stock. We cannot assure you that an active trading market for our Class A common stock will develop on that exchange or elsewhere or, if developed, that any market will be sustained. Accordingly, we cannot assure you of the likelihood that an active trading market for our Class A common stock will develop or be maintained, the liquidity of any trading market, your ability to sell your shares of our Class A common stock when desired, or the prices that you may obtain for your shares.

We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our Class A common stock less attractive to investors.

We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including:

 

   

not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes Oxley Act;

 

   

reduced disclosure obligations regarding executive compensation in our periodic reports and annual report on Form 10-K; and

 

   

exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

49


Table of Contents
   

We could be an emerging growth company for up to five years following the completion of this offering. Our status as an emerging growth company will end as soon as any of the following takes place:

 

   

the last day of the fiscal year in which we have more than $1.07 billion in annual revenue;

 

   

the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates;

 

   

the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or

 

   

the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.

We cannot predict if investors will find our Class A common stock less attractive if we choose to rely on the exemptions afforded emerging growth companies. If some investors find our Class A common stock less attractive because we rely on any of these exemptions, there may be a less active trading market for our Class A common stock and the trading price of our Class A common stock may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the trading price of our Class A common stock and trading volume could be adversely affected.

The trading market for our Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our Class A common stock would be negatively affected. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our Class A common stock trading price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us on a regular basis, demand for our Class A common stock could decrease, potentially causing our Class A common stock trading price and trading volume to decline.

Sales of substantial amounts of our Class A common stock in the public markets, such as when our lock-up restrictions are released, or the perception that sales might occur, could cause the trading price of our Class A common stock to decline.

Sales of a substantial number of shares of our Class A common stock into the public market, particularly sales by our directors, executive officers, and principal stockholders, or the perception that these sales might occur, could cause the trading price of our Class A common stock to decline. Based on the total number of outstanding shares of our common stock as of December 31, 2020, upon completion of this offering, we will have outstanding a total of                shares of Class A common stock and                  shares of Class B common stock. This assumes no exercise of outstanding options and gives effect to the conversion of all of our outstanding shares of redeemable convertible preferred stock into shares of Class B common stock and the issuance of                shares of Class A common stock on the completion of this offering.

Substantially all of our securities outstanding prior to the completion of this offering are currently restricted from resale as a result of lock-up and market standoff agreements. See the section titled “Shares Eligible for Future

 

50


Table of Contents

Sale” for additional information. These securities will become available to be sold                days after the date of the final prospectus relating to the offering. The lead underwriters may, in their discretion, permit our security holders to sell shares prior to the expiration of the restrictive provisions contained in the lock-up agreements. Sales of a substantial number of such shares upon expiration of the lock-up and market standoff agreements, the perception that such sales may occur, or early release of these agreements could cause our trading price to fall or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate. Shares held by directors, executive officers, and other affiliates will also be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, and various vesting agreements.

In addition, as of December 31, 2020, we had                  options outstanding that, if fully exercised, would result in the issuance of shares of Class B common stock, as well as                  shares of common stock subject to RSU awards. All of the shares of Class B common stock issuable upon the exercise of stock options, subject to RSU awards, and the shares reserved for future issuance under our equity incentive plans will be registered for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance, subject to existing lock-up or market standoff agreements, volume limitations under Rule 144 for our executive officers and directors, and applicable vesting requirements.

Following this offering, the holders of up to                  shares of our Class B common stock will have rights, subject to some conditions, to require us to file registration statements for the public resale of the Class A common stock issuable upon conversion of such shares or to include such shares in registration statements that we may file for us or other stockholders. Any registration statement we file to register additional shares, whether as a result of registration rights or otherwise, could cause the trading price of our Class A common stock to decline or be volatile.

Because the initial public offering price of our Class A common stock is substantially higher than the pro forma net tangible book value per share of our outstanding common stock following this offering, new investors will experience immediate and substantial dilution.

The initial public offering price of our Class A common stock is substantially higher than the pro forma net tangible book value per share of our common stock immediately following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase shares of our Class A common stock in this offering, you will experience immediate dilution of $                per share, representing the difference between the price per share you pay for our Class A common stock and the pro forma net tangible book value per share as of December 31, 2020, after giving effect to the issuance of shares of our Class A common stock in this offering. See the section titled “Dilution” below.

Our management will have broad discretion in the use of proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds to us from this offering, including for any of the purposes described in the section titled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Due to the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could adversely affect our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government. Our investments may not yield a favorable return to our investors. If we do not use the net proceeds that we receive in this offering effectively, our business, results of operations, and financial condition could be adversely affected.

 

51


Table of Contents

Our issuance of additional capital stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise will dilute all other stockholders.

We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors, and consultants under our stock incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our Class A common stock to decline.

We do not intend to pay dividends on our Class A common stock in the foreseeable future and, consequently, the ability of Class A common stockholders to achieve a return on investment will depend on appreciation in the trading price of our Class A common stock.

We have never declared or paid any cash dividends on our capital stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the operation of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

Provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current board of directors, and limit the trading price of our Class A common stock.

Provisions that will be in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective upon the completion of this offering, will include provisions that:

 

   

provide that our board of directors will be classified into three classes of directors with staggered three-year terms;

 

   

permit our board of directors to establish the number of directors and fill any vacancies and newly-created directorships;

 

   

require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and amended and restated bylaws;

 

   

authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;

 

   

provide that only the Chairperson of our board of directors, our Chief Executive Officer, or a majority of our board of directors will be authorized to call a special meeting of stockholders;

 

   

provide for a dual class common stock structure where holders of our Class B common stock are able to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets;

 

   

prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;

 

   

provide that the board of directors is expressly authorized to make, alter, or repeal our amended and restated bylaws; and

 

52


Table of Contents
   

contain advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

Moreover, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock. See the section titled “Description of Capital Stock” for additional information.

Our amended and restated bylaws will designate state or federal courts located within the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, potentially limiting stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Our amended and restated bylaws will provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any state law claims for:

 

   

any derivative action or proceeding brought on our behalf;

 

   

any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders;

 

   

any action asserting a claim arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; or

 

   

any action asserting a claim that is governed by the internal affairs doctrine, or the Delaware Forum Provision.

The Delaware Forum Provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. Further, our amended and restated bylaws will provide that, unless we consent in writing to the selection of an alternative forum, the United States District Court for the District of Delaware shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or the Federal Forum Provision, as the company is incorporated in the State of Delaware. In addition, our amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the Delaware Forum Provision and the Federal Forum Provision; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder.

The Delaware Forum Provision and the Federal Forum Provision in our amended and restated bylaws may impose additional litigation costs on stockholders in pursuing any such claims. Additionally, these forum selection clauses may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers, or employees, potentially discouraging the filing of lawsuits against us and our directors, officers, and employees, even though an action, if successful, might benefit our stockholders. In addition, while the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our Federal Forum Provision. If the Federal Forum Provision is found to be unenforceable, we may incur additional costs associated with resolving such matters. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of Delaware and the United States District Court for the District of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.

 

53


Table of Contents

General Risk Factors

Our business is subject to the risks of earthquakes, fire, floods, and other natural catastrophic events, and to interruption by man-made problems such as power disruptions, computer viruses, data security breaches, or terrorism.

Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity and wildfires. A significant natural disaster, such as an earthquake, fire, or flood, occurring at our headquarters, at one of our other facilities or where a vendor is located, could adversely affect our business, results of operations, and financial condition. Further, if a natural disaster or man-made problem were to affect our vendors, this could adversely affect the ability of our Customers to use our Platform. In addition, natural disasters and acts of terrorism could cause disruptions in our or our Customers’ businesses, national economies, or the world economy as a whole. Health concerns or political or governmental developments in countries where we or our Customers and vendors operate could result in economic, social, or labor instability and could have a material adverse effect on our business, results of operations, and financial condition.

We also rely on our network and third-party infrastructure and enterprise applications and internal technology systems for our engineering, sales and marketing, and operations activities. Although we maintain incident management and disaster response plans, in the event of a major disruption caused by a natural disaster or man-made problem, we may be unable to continue our operations in part or in full and may endure system interruptions, reputational harm, delays in our development activities, lengthy interruptions in service, breaches of data security and loss of critical data, any of which could adversely affect our business, results of operations, and financial condition.

In addition, computer malware, viruses, computer hacking, fraudulent use attempts, and phishing attacks have become more prevalent generally and in our industry, have occurred on our Platform in the past, and may occur on our Platform in the future. Though it is difficult to determine fully what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security, integrity, and availability of our products and technical infrastructure to the satisfaction of our Customers may harm our reputation and our ability to retain existing Customers and attract new Customers.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.

As a public company, we will be subject to the reporting requirements of the Exchange Act, the listing standards of and other applicable securities rules and regulations. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems, and resources. For example, the Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and results of operations. As a result of the complexity involved in complying with the rules and regulations applicable to public companies, our management’s attention may be diverted from other business concerns, potentially adversely affecting our business, results of operations, and financial condition. Although we have already hired additional employees to assist us in complying with these requirements, we may need to hire more employees in the future or engage outside consultants or contractors, which will increase our operating expenses.

In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, potentially resulting in continued uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance

 

54


Table of Contents

practices. We intend to invest substantial resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from business operations to compliance activities. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

We also expect that being a public company and being subject to these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, potentially resulting in an increased risk of threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business, results of operations, and financial condition could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, results of operations, and financial condition.

Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our management and could divert their attention away from the day-to-day management of our business, potentially adversely affecting our business, results of operations, and financial condition.

 

55


Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the federal securities laws, which are statements that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

   

the effect of uncertainties related to the global COVID-19 pandemic on U.S. and global economies, our business, results of operations, financial condition, demand for our Platform, sales cycles and Customer retention;

 

   

our future financial performance, including our revenue, cost of revenue and operating expenses and our ability to achieve and maintain future profitability;

 

   

our ability to effectively manage or sustain our growth and to effectively expand our operations;

 

   

our ability to enhance our Platform and develop and expand its capabilities;

 

   

our ability to further attract, retain, diversify, and expand our Customer base;

 

   

our ability to maintain our relationships with our Issuing Banks and Card Networks;

 

   

our strategies, plans, objectives, and goals;

 

   

our plans to expand internationally;

 

   

our ability to compete with existing and new competitors in existing and new markets and offerings;

 

   

our estimated market opportunity;

 

   

economic and industry trends, projected growth, or trend analysis;

 

   

our ability to develop and protect our brand;

 

   

our ability to comply with laws and regulations;

 

   

our ability to successfully defend litigation brought against us;

 

   

our ability to attract and retain qualified employees and key personnel;

 

   

our ability to remediate our material weakness in our internal control over financial reporting;

 

   

the increased expenses associated with being a public company; and

 

   

our anticipated uses of the net proceeds from this offering.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, results of operations, financial condition, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

 

56


Table of Contents

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.

 

57


Table of Contents

INDUSTRY AND MARKET DATA

This prospectus contains statistical data, estimates, and forecasts regarding the payments industry that are based on various sources, including Euromonitor International Limited and other independent industry publications or other publicly available information, as well as other information based on our internal sources. Some data and other information contained in this prospectus are also based on management’s estimates and calculations, which are derived from our review and interpretation of internal independent sources. Data regarding the industries in which we compete and our market position and market share within these industries are inherently imprecise and are subject to significant business, economic and competitive uncertainties beyond our control, but we believe they generally indicate size, position, and market share within this industry. While we believe such information is reliable, we have not independently verified any third-party information. While we believe our internal company research and estimates are reliable, such research and estimates have not been verified by any independent source. In addition, assumptions and estimates of our and our industries’ future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates, and you are cautioned not to give undue weight to these estimates. As a result, you should be aware that market, ranking and other similar industry data included in this prospectus, and estimates and beliefs based on that data, may not be reliable. Neither we nor the underwriters can guarantee the accuracy or completeness of any such information contained in this prospectus. The content of the below sources, except to the extent specifically set forth in this prospectus, does not constitute a portion of this prospectus and is not incorporated herein.

Certain information in the text of this prospectus is contained in independent industry publications and publicly-available reports. The source of these independent industry publications is provided below:

 

   

Edgar, Dunn & Company, Global Issuing Processing Market Sizing Model, January 2019

 

   

Euromonitor International Limited, Consumer Finance 2021 Edition

 

   

PYMNTS.com, Inspiring Trust In The New Digital Economy, September 2020

 

   

The Nilson Report, U.S. General Purpose Brands Purchase Volume in 2019, Issue 1169, February 2020

 

   

The Nilson Report, Global Network Cards in 2019, Issue 1178, June 2020

 

   

The Nilson Report, Top U.S. Issuers of Visa and Mastercard Consumer Cards, Issue 1180 July 2020

 

   

The Nilson Report, Payment Cards Projected Worldwide, Issue 1184, October 2020

 

   

Visa Inc., 2020 Investor Day Presentation, February 11, 2020

 

58


Table of Contents

USE OF PROCEEDS

We estimate that the net proceeds from the sale of shares of our Class A common stock that we are selling in this offering will be approximately $            million, based upon an assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares of our Class A common stock from us is exercised in full, we estimate that our net proceeds would be approximately $            million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the net proceeds that we receive from this offering by approximately $             million, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of 1.0 million in the number of shares of our Class A common stock offered by us would increase or decrease the net proceeds that we receive from this offering by approximately $             million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

The principal purposes of this offering are to increase our capitalization, increase our financial flexibility, create a public market for our Class A common stock, and enable access to the public equity markets for our stockholders and us. We currently intend to use the net proceeds that we will receive from this offering for working capital and other general corporate purposes and to fund our growth strategies, including continued investments in our business globally. We may also use a portion of the net proceeds that we receive to acquire or invest in complementary businesses, products, services, technologies, or other assets. We do not, however, have any agreements or commitments to enter into any acquisitions or investments at this time.

We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering or the amounts we actually spend on the uses set forth above. Pending the use of proceeds from this offering as described above, we plan to invest a portion of the net proceeds that we receive in this offering in short-term and intermediate-term interest-bearing obligations, investment-grade investments, certificates of deposit, or direct or guaranteed obligations of the U.S. government. Our management will have broad discretion in the application of the net proceeds from this offering and investors will be relying on the judgment of our management regarding the application of the proceeds.

 

59


Table of Contents

DIVIDEND POLICY

We have never declared or paid any cash dividend on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, any contractual restrictions, general business conditions, and other factors that our board of directors may deem relevant.

 

60


Table of Contents

CAPITALIZATION

The following table sets forth cash, cash equivalents, restricted cash, and marketable securities, as well as our capitalization, as of December 31, 2020 as follows:

 

   

on an actual basis;

 

   

on a pro forma basis, giving effect to (i) the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, (ii) the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into an aggregate of                  shares of our common stock, (iii) the reclassification of our outstanding common stock as Class B common stock, (iv) the reclassification of the redeemable convertible preferred stock warrant liabilities to additional paid-in capital, (v) the net issuance of                shares of our common stock issuable pursuant to the vesting and settlement of                RSUs for which the service condition was satisfied as of December 31, 2020, and for which we expect the liquidity condition to be satisfied in connection with this offering, based upon the initial public offering price of $                per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and (vi) the increase in other accrued liabilities and an equivalent decrease in additional paid-in capital of $                in connection with tax withholding obligations related to such RSUs, based upon the initial public offering price of $                per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, all of which will occur immediately prior to the completion of this offering, as if such actions had occurred on December 31, 2020; and

 

   

on a pro forma as adjusted basis, giving effect to (i) the pro forma adjustments set forth above and (ii) the sale and issuance by us of                shares of our Class A common stock in this offering, based on an assumed initial public offering price of $                per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

61


Table of Contents

The pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other final terms of this offering. You should read this table together with our consolidated financial statements and related notes, and the sections titled “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus.

 

     As of December 31, 2020  
     Actual      Pro
Forma
     Pro Forma as
Adjusted
 
     (in thousands, except share and per
share data)
 

Cash, cash equivalents, restricted cash and marketable securities

   $                                                        

Redeemable convertible preferred stock warrant liabilities

        

Redeemable convertible preferred stock, $0.0001 par value; 352,047,950 shares authorized;              shares issued and outstanding, actual; no shares authorized, issued, and outstanding, pro forma and pro forma as adjusted

   $          

Stockholders’ equity (deficit):

        

Preferred stock, $0.0001 par value; no shares authorized, issued and outstanding, actual;             shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

     —          —       

Common stock, $0.0001 par value; 545,000,000 shares authorized,              shares issued and outstanding, actual; shares authorized, shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted

        

Class A common stock, $0.0001 par value; no shares authorized, issued and outstanding, actual;             shares authorized,             shares issued and outstanding, pro forma; and             shares authorized,             shares issued and outstanding, pro forma as adjusted

     —          —       

Class B common stock, $0.0001 par value; no shares authorized, issued and outstanding, actual;             shares authorized,             shares issued and outstanding, pro forma; and             shares authorized,             shares issued and outstanding, pro forma as adjusted

     —          —       

Additional paid-in capital

        

Accumulated other comprehensive income (loss)

        

Accumulated deficit

        

Total stockholders’ equity (deficit):

        —          —    

Total capitalization

   $        $ —        $ —    

If the underwriters’ option to purchase additional shares of our Class A common stock from us were exercised in full, pro forma as adjusted cash, cash equivalents and marketable securities, additional paid-in capital, total stockholders’ deficit, total capitalization, and shares of Class A common stock issued and outstanding as of December 31, 2020 would be $            million, $            million, $            million, $            million, and                shares, respectively.

Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our cash, cash equivalents and marketable securities, additional paid-in capital, and total stockholders’ deficit by approximately $            million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of our Class A common stock offered by us would increase or decrease, as applicable, our cash, cash equivalents and marketable securities, additional paid-in capital, and total stockholders’ deficit by

 

62


Table of Contents

approximately $            million, assuming the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions payable by us.

The pro forma column in the table above is based on no shares of our Class A common stock and                  shares of our Class B common stock outstanding as of December 31, 2020, and excludes:

 

   

                 shares of our Class B common stock issuable upon the exercise of options to purchase shares of our Class B common stock that were outstanding as of December 31, 2020, with a weighted-average exercise price of $             per share;

 

   

                 RSUs for shares of our Class B common stock that are issuable upon satisfaction of service and liquidity conditions outstanding as of December 31, 2020, for which the service-based condition was not yet satisfied as of December 31, 2020;

 

   

                 shares of our Class B common stock issuable upon the exercise of options to purchase common stock granted after December 31, 2020, with a weighted-average exercise price of $             per share;

 

   

                 RSUs for shares of our Class B common stock that are issuable upon satisfaction of service and liquidity conditions that were granted after December 31, 2020;

 

   

                 shares of our Class B common stock issuable upon conversion of redeemable convertible preferred stock issued after December 31, 2020;

 

   

                 shares of Class B common stock issuable upon the exercise of redeemable convertible preferred stock warrants held by Comerica Ventures Incorporated, outstanding as of December 31, 2020, with a weighted-average exercise price of $             per share;

 

   

                 shares of Class B common stock issuable upon the exercise of common stock warrants held by Silicon Valley Bank, outstanding as of December 31, 2020, with a weighted-average exercise price of $             per share;

 

   

                 shares of our Class B common stock reserved for future issuance to fund and support our social impact initiatives;

 

   

                 shares of Class B common stock issuable upon the exercise of a common stock warrant held by Uber Technologies, Inc., dated September 15, 2020, with an exercise price of $             per share,                of which are currently exercisable and                of which are exercisable upon attaining certain milestones;

 

   

                 shares of our Class B common stock reserved for future issuance pursuant to our 2011 Plan; and

 

   

                shares of our Class A common stock reserved for future issuance under our share-based compensation plans to be adopted in connection with this offering, consisting of:

 

   

                shares of our Class A common stock reserved for future issuance under our 2021 Plan.

Our 2021 Plan provides for annual automatic increases in the number of shares reserved thereunder and increases to the number of shares of Class A common stock that may be granted thereunder based on shares underlying any awards under our 2011 Plan that expire, are forfeited or are otherwise terminated, as more fully described in the section titled “Executive Compensation—Employee Benefits and Stock Plans.”

 

63


Table of Contents

DILUTION

If you invest in our Class A common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of Class A common stock in this offering and the pro forma as adjusted net tangible book value per share of Class A common stock immediately after completion of this offering.

Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities and redeemable convertible preferred stock, which is not included in our stockholders’ equity (deficit). Our historical net tangible book value (deficit) as of December 31, 2020 was $                million, or $                per share. Our pro forma net tangible book value (deficit) as of December 31, 2020 was $                million, or $                per share, based on the total number of shares of our common stock outstanding as of December 31, 2020, after giving effect to (i) the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, (ii) the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into an aggregate of                  shares of our common stock, (iii) the reclassification of our outstanding common stock as Class B common stock, (iv) the reclassification of the redeemable convertible preferred stock warrant liabilities to additional paid-in capital, (v) the net issuance of            shares of our common stock issuable pursuant to the vesting and settlement of                RSUs for which the service condition was satisfied as of December 31, 2020, and for which we expect the liquidity condition to be satisfied in connection with this offering, based upon the initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and (vi) the increase in other accrued liabilities and an equivalent decrease in additional paid-in capital of $                in connection with tax withholding obligations related to such RSUs, based upon the initial public offering price of $                per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, all of which will occur immediately prior to the completion of this offering.

After giving effect to the sale by us of                shares of our Class A common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2020 would have been $            million, or $            per share. This represents an immediate increase in pro forma net tangible book value of $            per share to our existing stockholders and immediate dilution of $            per share to investors purchasing shares of our Class A common stock in this offering. The following table illustrates this dilution:

 

Assumed initial public offering price per share

      $                

Pro forma net tangible book value (deficit) per share as of December 31, 2020

   $                   

Increase in pro forma net tangible book value (deficit) per share attributable to new investors in this offering

     
  

 

 

    

Pro forma as adjusted net tangible book value per share immediately after this offering

     
     

 

 

 

Dilution in pro forma net tangible book value per share to new investors in this offering

      $    
     

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to new investors by $            , and would increase or decrease, as applicable, dilution per share to new investors in this offering by $            , assuming that the number of shares of our Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us.

 

64


Table of Contents

In addition, to the extent any outstanding options to purchase Class B common stock are exercised, new investors would experience further dilution. If the underwriters exercise their option to purchase                additional shares of our Class A common stock from us in full, the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering would be $            per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $            per share.

The following table presents, on a pro forma as adjusted basis as of December 31, 2020, after giving effect to the conversion and reclassification of all outstanding shares of redeemable convertible preferred stock into Class B common stock immediately prior to the completion of this offering, the differences between the existing stockholders and the new investors purchasing shares of our Class A common stock in this offering with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, which includes net proceeds received from the issuance of common stock and redeemable convertible preferred stock, and the average price per share paid or to be paid to us at an assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Average
Price per
Share
 
     Number      Percent     Amount      Percent  

Existing stockholders

                                $                             $                

New investors

            
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100   $          100  
  

 

 

    

 

 

   

 

 

    

 

 

   

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the total consideration paid by new investors and total consideration paid by all stockholders by approximately $             million, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. In addition, to the extent any outstanding options to purchase Class B common stock are exercised, new investors will experience further dilution.

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares of Class A common stock. If the underwriters exercise their option to purchase additional shares of Class A common stock in full from us, our existing stockholders would own     % and our new investors would own     % of the total number of shares of our common stock outstanding upon the completion of this offering.

The number of shares of our Class A common stock and Class B common stock that will be outstanding after this offering is based on no shares of our Class A common stock and                  shares of our Class B common stock outstanding as of December 31, 2020, and excludes:

 

   

                 shares of our Class B common stock issuable upon the exercise of options to purchase shares of our Class B common stock that were outstanding as of December 31, 2020, with a weighted-average exercise price of $             per share;

 

   

                 RSUs for shares of our Class B common stock that are issuable upon satisfaction of service and liquidity conditions outstanding as of December 31, 2020, for which the service-based condition was not yet satisfied as of December 31, 2020;

 

   

                 shares of our Class B common stock issuable upon the exercise of options to purchase common stock granted after December 31, 2020, with a weighted-average exercise price of $             per share;

 

   

                 RSUs for shares of our Class B common stock that are issuable upon satisfaction of service and liquidity conditions that were granted after December 31, 2020;

 

65


Table of Contents
   

                 shares of our Class B common stock issuable upon conversion of redeemable convertible preferred stock issued after December 31, 2020;

 

   

                 shares of Class B common stock issuable upon the exercise of redeemable convertible preferred stock warrants held by Comerica Ventures Incorporated, outstanding as of December 31, 2020, with a weighted-average exercise price of $             per share;

 

   

                 shares of Class B common stock issuable upon the exercise of common stock warrants held by Silicon Valley Bank, outstanding as of December 31, 2020, with a weighted-average exercise price of $             per share;

 

   

                 shares of our Class B common stock reserved for future issuance to fund and support our social impact initiatives;

 

   

                 shares of Class B common stock issuable upon the exercise of a common stock warrant held by Uber Technologies, Inc., dated September 15, 2020, with an exercise price of $             per share,                of which are currently exercisable and                of which are exercisable upon attaining certain milestones;

 

   

                 shares of our Class B common stock reserved for future issuance pursuant to our 2011 Plan; and

 

   

                shares of our Class A common stock reserved for future issuance under our share-based compensation plans to be adopted in connection with this offering, consisting of:

 

   

                    shares of our Class A common stock reserved for future issuance under our 2021 Plan.

Our 2021 Plan provides for annual automatic increases in the number of shares of our Class A common stock reserved thereunder and increases to the number of shares of our Class A common stock that may be granted thereunder based on shares underlying any awards under our 2011 Plan that expire, are forfeited or are otherwise terminated, as more fully described in the section titled “Executive Compensation—Employee Benefits and Stock Plans.”

To the extent that any outstanding options to purchase our Class B common stock are exercised, outstanding RSUs vest or new awards are granted under our equity compensation plans, there will be further dilution to investors participating in this offering.

 

66


Table of Contents

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following selected consolidated statements of operations data for the years ended December 31, 2019 and 2020 and the consolidated balance sheet data as of December 31, 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the following selected consolidated financial data and other data below in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     Year Ended December 31,  
         2019             2020      
     (in thousands, except per share
amounts or as noted)
 

Consolidated Statements of Operations Data:

    

Net revenue

   $ 143,267                         

Costs of revenue

     82,814    
  

 

 

   

 

 

 

Gross profit

     60,453    
  

 

 

   

 

 

 

Gross margin

     42  

Operating expenses:

    

Compensation and benefits(1)

     86,506    

All other operating expenses

     32,810    

Loss from operations

     (58,863  

Other income (expense), net

     698    

Income tax expense

     (35  
  

 

 

   

 

 

 

Net loss

   $ (58,200  
  

 

 

   

 

 

 

Net loss per share attributable to Class A and Class B common stockholders, basic and diluted(2)

   $ (1.07  

Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted

     113,852    

 

(1)

Compensation and benefits include share-based compensation expense of $21.8 million and $                million for the years ended December 31, 2019 and December 31, 2020, respectively. Following this offering, our future operating expenses, particularly in the quarter in which this offering is completed, will include substantial share-based compensation expense with respect to our RSUs as well as any other share-based awards we may grant in the future.

(2)

Refer to Note 13 to our consolidated financial statements for the detailed calculation.

 

     As of December 31,  
     2019     2020  
     (in thousands)  

Consolidated Balance Sheet Data:

    

Cash and cash equivalents

   $ 60,344                       

Restricted cash

     7,800  

Marketable securities

     95,225  

Working capital

     132,894    

Total assets

     223,191    

Total liabilities

     85,849    

Redeemable convertible preferred stock

     335,748    

Total stockholders’ deficit

     (198,406  

 

67


Table of Contents

Key Operating Metric and Non-GAAP Financial Measures

We review a number of operating and financial metrics, including the key metric set forth below, to help us evaluate our business and growth trends, establish budgets, evaluate the effectiveness of our investments, and assess operational efficiencies. In addition to the results determined in accordance with GAAP, the following table sets forth a key operating metric and non-GAAP financial measures that we consider useful in evaluating our operating performance.

 

     Year Ended December 31,  
           2019                 2020        

Total Processing Volume (TPV) (in millions)(1)

   $ 21,674                         

Adjusted EBITDA (in thousands)(2)

   $ (34,026  

Adjusted EBITDA Margin(3)

     (23.8 )%   

 

(1)

Total Processing Volume (TPV) represents the total dollar amount of payments processed through our Platform, net of returns and chargebacks.

(2)

Adjusted EBITDA is a non-GAAP financial measure that is calculated as net income (loss) adjusted to exclude share-based compensation expense, depreciation and amortization, income tax expense, and other income (expense) net, which consists of interest expense from a bank loan, interest income from our marketable securities portfolio, fair value adjustments to redeemable convertible preferred stock warrant liabilities, and impairment of equity method investments.

(3)

Adjusted EBITDA Margin is a non-GAAP financial measure that is calculated as adjusted EBITDA divided by net revenue.

For additional information about our key metric and non-GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metric and Non-GAAP Financial Measures.”

 

68


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Selected Consolidated Financial and Other Data” and the consolidated financial statements and related notes that are included elsewhere in this prospectus. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled “Risk Factors” or in other parts of this prospectus.

Overview

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, or our Platform, empowers businesses like DoorDash, Instacart, and Affirm to create customized payment cards that provide innovative payment experiences for their customers and end users. Before the rise of modern card issuing, creating cards was slow, complex, and subject to mistakes. Marqeta helps solve these problems. Our Platform, powered by open APIs, enables businesses to develop modern, frictionless payment card experiences for consumer and commercial use cases that are either the core of, or in support of, their core business.

Our modern architecture allows for flexibility, a high degree of configurability, and accelerated product development, democratizing access to card issuing technology. Marqeta’s open APIs provide instant access to our highly scalable, cloud-based, and configurable payment infrastructure that enables our Customers to launch and manage their own card programs, issue cards, and authorize and settle payments transactions.

In 2020, the Marqeta Platform processed approximately $60 billion of card transaction value, up 172% from approximately $22 billion in the prior year.

 

LOGO

 

69


Table of Contents

Historically, the capabilities to build and deploy card programs at scale were typically reserved for large financial institutions, not innovative and disruptive companies. Our Platform is designed to meet the card issuing and transaction processing needs of commerce disruptors and large financial institutions. Marqeta has already emerged as the card issuing platform category leader in many disruptive verticals, including on-demand delivery, alternative lending, expense management, disbursement, digital remittances, and digital banks. Our platform is sought out by large financial institutions to improve their existing offerings and stay competitive with technology-focused new market entrants. With approximately 275 million cards issued through the Marqeta Platform as of December 31, 2020, we are democratizing card issuing as the critical interface between Issuing Banks, Card Networks, and our Customers to manage all aspects of card issuing and processing.

Key Factors Affecting Our Performance

We believe Marqeta’s growth, future success, and performance are dependent upon a number of factors, including those listed below. While these factors present significant opportunities for us, they also represent challenges we must successfully address to grow the adoption and use of the Marqeta Platform and improve our results of operations.

Our growth is aligned with our Customers’ growth.    We believe our growth, future success, and performance is closely aligned with that of our Customers. We employ a usage-based model, based on payment volumes, and derive the majority of our revenue from Interchange Fees generated by card transactions through our Platform. 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 the merchant. Our agreements with our Issuing Banks provide that we receive 100% of the Interchange Fees for processing our Customers’ card transactions. As our Customers’ transaction volumes grow, they may earn an increased percentage of Revenue Share, where we share a portion of Interchange Fees with our Customers. Sharing an increased percentage of Interchange Fees with our Customers aligns our interests with our Customers’ growth and builds deeper Customer relationships. As the chart below illustrates, we have a consistent history of attracting new Customers and expanding their annual spend with us over time. The sustained year-over-year growth of our annual cohorts shows a healthy momentum across our Customer base, even exclusive of our two largest Customers (Square and Instacart). Some of our Customers have experienced incredible growth in the time they have been on our Platform and we remain a key operating partner that continues to support and benefit from their success. For example, Square became a Customer in 2016. Square launched their Square Card program on our Platform in 2018. As transaction volumes with Square have grown, our net revenue has also grown such that Square is now our largest Customer, representing approximately 60% and approximately     % of our net revenue in 2019 and 2020, respectively. If either of our two largest Customers were to see a slowdown in their business or use our Platform in a more limited capacity, our business, results of operations, and financial condition could be adversely affected.

 

70


Table of Contents

LOGO

Revenue model.    We derive the majority of our revenue from Interchange Fees generated by processing payment transactions through our Platform. Interchange Fees are established by the Card Networks and the total Interchange Fees we collect are dependent on various factors including the aggregate transaction volumes, merchant category code, transaction size, and other transaction attributes. For Customers under certain contracts, their percentage of Revenue Share increases as respective transaction volumes scale. Our gross margins may decrease as a result of this dynamic. However, we remain strategically focused on growing incremental gross profit dollars and have the ability to partially offset margin declines with better pricing that we achieve with Issuing Banks and Card Networks. Changes in transaction mix, which refers to the proportion of signature debit versus PIN debit transactions that make up our overall transaction volumes, including changes as a result of COVID-19, could result in fluctuations to our net revenue. Further, certain Customers’ transaction volumes are subject to seasonal fluctuations that could cause varied revenue results across the quarters.

Effect of pricing initiatives for our payment processing services.    Our Customer contracts typically include Revenue Share provisions, incentivizing our Customers to continue to use our Platform and increase their transaction volumes on our Platform. Revenue Share provisions include increased rates of Revenue Share when transaction volumes reach specified volume tiers. As Customers’ transaction volumes increase, they may earn an increased percentage of Revenue Share, which generally results in higher gross profit but can reduce our gross margin.

Ecosystem of key vendor partners.    We partner with Card Networks who oversee their global payment networks, through which debit, credit, and prepaid card payments are authorized, processed, and settled. We incur fees charged by the Card Networks to route our Customers’ transactions within the payments ecosystem. These fees are reflected in our costs of revenue. Given our ability to direct transaction volumes to specific Card Networks, we are able to negotiate certain incentive rebates that effectively reduce the overall network fees. With the scale of the volumes 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.

We partner with Issuing Banks to facilitate the issuance of payment cards to our Customers and to sponsor our Customers’ card programs on Card Networks because we do not have regulatory authority to perform these activities ourselves. We pay volume- and transaction-based fees to the Issuing Banks. The fees are typically

 

71


Table of Contents

structured based on transaction volume tiers; as our transaction volumes grow, these fees as a percentage of transaction volume decline. These fees are reflected in our costs of revenue.

System performance and reliability.    Our partnerships with the Card Networks and Issuing Banks rely on our secure and compliant processing in accordance with their standards and require continued diligence to combat fraud and misuse of our Platform. Any disruption to our ability to process transactions through our Platform may impact our net revenue. Additionally, system downtime could result in contractual payments to our Customers based on service level commitments included in our Customer contracts, which could adversely affect our financial performance.

Continued investment in our Platform.    We make significant investments in both new product development and platform enhancements, such as our Tokenization as a Service product introduced in 2020. 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.

Impact of COVID-19

The unprecedented and rapid spread of COVID-19 and the resultant shelter-in-place orders, promotion of social distancing measures, restrictions on businesses deemed non-essential, and travel restrictions implemented throughout the United States in March 2020 have significantly affected many aspects of the economy. In response to COVID-19, we have implemented measures to focus on employee safety and Customer support, while at the same time seeking to mitigate any negative impact on our financial position and operations. We have implemented remote working capabilities for our entire company and, to date, there has been minimal disruption to our operations.

The restaurant, travel, and hospitality sectors of the U.S. economy have been significantly and adversely affected by COVID-19. We believe this has accelerated the shift of purchasing activities from offline to online and the growth of on-demand delivery services. Many of these service providers are our Customers, and are experiencing accelerated adoption of virtual and contactless forms of payments.

While our business has not been adversely affected by COVID-19 pandemic to date, we continue to monitor the situation and may take actions that alter our operations and business practices as may be required by federal, state, or local authorities or that we determine are in the best interests of our partners, Customers, vendors, and employees.

Key Operating Metric and Non-GAAP Financial Measures

We review a number of operating and financial metrics, including the key metric set forth below, to help us evaluate our business and growth trends, establish budgets, evaluate the effectiveness of our investments, and assess operational efficiencies. In addition to the results determined in accordance with GAAP, the following table sets forth a key operating metric and non-GAAP financial measures that we consider useful in evaluating our operating performance.

 

     Year Ended
December 31,
 
     2019         2020      

Total Processing Volume (TPV) (in millions)

   $ 21,674                     

Adjusted EBITDA (in thousands)

   $ (34,026  

Adjusted EBITDA Margin

     (23.8 )%   

 

72


Table of Contents

Total Processing Volume (TPV)—Total Processing Volume (TPV) represents the total dollar amount of payments processed through our Platform, net of returns and chargebacks. We believe that TPV is a key indicator of the market adoption of our Platform, growth of our brand, growth of our Customers’ business and scale of our business.

Adjusted EBITDA—Adjusted EBITDA is a non-GAAP financial measure that is calculated as net income (loss) adjusted to exclude share-based compensation expense, depreciation and amortization, income tax expense, and other income (expense) net, which consists of interest expense from a bank loan, interest income from our marketable securities portfolio, fair value adjustments to redeemable convertible preferred stock warrant liabilities, and impairment of equity method investments. We believe that adjusted EBITDA is an important measure of operating performance because it allows management and our board of directors to evaluate and compare our core operating results, including our operating efficiencies, from period to period. Additionally, we utilize adjusted EBITDA as an input into our calculation of certain annual employee bonus plans.

Adjusted EBITDA Margin—Adjusted EBITDA Margin is a non-GAAP financial measure that is calculated as adjusted EBITDA divided by net revenue. This is used by management and our board of directors to determine our operating efficiency.

Limitations of Non-GAAP Financial Measures

Our non-GAAP measures have limitations as analytical tools and you should not consider them in isolation. These non-GAAP measures should not be viewed as a substitute for, or superior to, measures prepared in accordance with GAAP. In evaluating these non-GAAP measures, you should be aware that in the future we will incur expenses similar to the adjustments in the presentation set forth above. There are a number of limitations related to the use of these non-GAAP measures versus their most directly comparable GAAP measures, including the following:

 

   

other companies, including companies in our industry, may calculate adjusted EBITDA differently than how we calculate this measure or not at all; this reduces its usefulness as a comparative measure;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditures; and

 

   

adjusted EBITDA does not reflect the effect of income taxes that may represent a reduction in cash available to us.

We encourage investors to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures. A reconciliation of net loss to adjusted EBITDA and adjusted EBITDA margin for the years ended December 31, 2019 and 2020 is as follows:

 

     Year Ended
December 31,
 
     2019         2020      
     (in thousands except
percentages)
 

Net loss

   $ (58,200                   

Depreciation and amortization expense

     3,080    

Share-based compensation expense

     21,757    

Other income (expense), net

     (698  

Income tax expense

     35    
  

 

 

   

 

 

 

Adjusted EBITDA

   $ (34,026  
  

 

 

   

 

 

 

Adjusted EBITDA Margin

     (23.8 )%   

 

73


Table of Contents

Components of Results of Operations

Net Revenue

We have two components of net revenue: platform services revenue, net and other services revenue.

Platform services revenue, net.    Platform services revenue includes Interchange Fees and processing and other fees, net of Revenue Share and other service level payments to Customers. Interchange Fees are earned on card transactions we process for our Customers and are calculated based on a percentage of the card transaction value plus a fixed amount. Interchange Fees are recognized when the associated transactions are settled. Processing and other fees include fees when end users use payment cards at automated teller machines to withdraw cash and minimum processing fees if Customers’ transaction volumes fall below certain thresholds.

Revenue Share payments are incentives to Customers to increase the transaction volumes on the Company’s Platform. Revenue Share is generally computed as a percentage of the Interchange Fees earned or total transaction volume and is paid to Customers monthly. Revenue Share payments are recorded as a reduction to revenue. As Customers’ transaction volumes increase, they may earn an increased percentage of Revenue Share.

Other services revenue.    Other services revenue primarily consists of revenue earned for card fulfillment services. Card fulfillment fees are generally billed to Customers upon ordering card inventory and recognized as revenue when the cards are shipped to the Customers. Additionally, certain revenue contracts require an allocation of the transaction price to the card fulfillment performance obligation, which requires us to estimate a standalone selling price for card fulfillment services.

Costs of Revenue

Costs of revenue consist of Card Network costs, Issuing Bank costs, and card fulfillment costs. Card Network costs are generally equal to a specified percentage of the gross transaction volume or a fixed amount per transaction routed through the respective Card Network. Issuing Bank costs compensate our Issuing Banks for issuing cards to our Customers and sponsoring our card programs with the Card Networks and are generally equal to a specified percentage of the gross transaction volume or a fixed amount per transaction. Card fulfillment costs include physical cards, packaging, and other fulfillment costs.

We have separate marketing and incentive arrangements with Card Networks that provide us with monetary incentives for transaction volume via the respective Card Network. The amount of the incentives is determined based on a percentage of the gross volume routed over the Card Network. We record these incentives as a reduction of Card Network fees included in costs of revenue. Generally, as Customers’ transaction volumes increase we earn a higher rate of monetary incentives from these arrangements, subject to attaining certain volume tiering thresholds.

Operating Expenses

Compensation and Benefits.    Compensation and benefits consist primarily of salaries, employees’ benefits, incentive compensation, and share-based compensation. We expect that our compensation and benefits expenses will increase in absolute dollars as our business grows. Commencing in the first quarter of 2020, we began granting RSUs to employees. RSUs vest upon the satisfaction of both a service condition and a liquidity condition. The service condition for these awards is satisfied over four years. The liquidity condition is satisfied upon the occurrence of a change in control of the Company or the consummation of an initial public offering. In the quarter that we complete this initial public offering, we will record share-based compensation expense for all RSUs that have met the service condition to date using the accelerated attribution method. As of December 31, 2020, no share-based compensation expense had been recognized for RSUs because the liquidity condition had not occurred. If our initial public offering had occurred on December 31, 2020, we would have recognized $                million of cumulative share-based compensation expense on that date.

 

74


Table of Contents

Professional Services.    Professional services consist primarily of consulting, legal, and recruiting fees. We expect that our professional services expenses will increase in absolute dollars as our business grows.

Technology.    Technology consists primarily of third-party hosting fees, software licenses, and hardware purchases below our capitalization threshold, and support and maintenance costs. We expect that our technology expenses will increase in absolute dollars as our business grows.

Occupancy.    Occupancy consists primarily of rent expense, repairs, maintenance, and other building related costs. We expect that our occupancy expenses will increase in absolute dollars as our business grows.

Depreciation and Amortization.    Depreciation and amortization consist primarily of depreciation of our fixed assets. We expect that our depreciation and amortization expenses will increase in absolute dollars as our business grows.

Marketing and Advertising.    Marketing and advertising consist primarily of costs of general marketing activities and promotional activities. We expect that our marketing and advertising expenses will increase in absolute dollars as our business grows.

Other Operating Expenses.    Other operating expenses consist primarily of indirect state and local taxes, employees training, charitable donation and other general office expenses. We expect that our other operating expenses will increase in absolute dollars as our business grows and we expect we will incur increased expenses to operate as a public company.

Other Income (Expense), net

Other income (expense), net consists primarily of interest income from our marketable securities, interest expense on our loan and security agreement that was paid off in December 2019, realized foreign currency gains and losses, changes in the fair value of the redeemable convertible preferred stock warrant liabilities, and impairment of our equity method investments in 2019.

Income Tax Expense

Income tax expense consists of U.S. federal and state income taxes and U.K. income taxes. We maintain a full valuation allowance on our federal and state net deferred tax assets as we have concluded that it is not more likely than not that we will realize our net deferred tax assets.

 

75


Table of Contents

Results of Operations

The following table sets forth our results of operations for the periods presented:

 

     Year Ended December 31,  
             2019                     2020          
     (in thousands)  

Net revenue

   $ 143,267                   

Costs of revenue

     82,814  
  

 

 

   

 

 

 

Gross profit

     60,453  

Operating expenses:

    

Compensation and benefits

     86,506  

Professional services

     8,960  

Technology

     7,796  

Occupancy

     3,777  

Depreciation and amortization

     3,080  

Marketing and advertising

     2,080  

Other operating expenses

     7,117  
  

 

 

   

 

 

 

Total operating expenses

     119,316  
  

 

 

   

 

 

 

Loss from operations

     (58,863  

Other income (expense), net

     698  
  

 

 

   

 

 

 

Loss before income tax expense

     (58,165  

Income tax expense

     (35  
  

 

 

   

 

 

 

Net loss

   $ (58,200  
  

 

 

   

 

 

 

The following table sets forth our results of operations for the periods presented as a percentage of our net revenue:

 

     Year Ended December 31,  
             2019                     2020          

Net revenue

     100                   

Costs of revenue

     58    
  

 

 

   

 

 

 

Gross margin

     42    

Operating expenses:

    

Compensation and benefits

     60    

Professional services

     6    

Technology

     5    

Occupancy

     3    

Depreciation and amortization

     2    

Marketing and advertising

     1    

Other operating expenses

     5    
  

 

 

   

 

 

 

Total operating expenses

     82    
  

 

 

   

 

 

 

Loss from operations

     (40  

Other income (expense), net

        
  

 

 

   

 

 

 

Loss before income tax expense

     (40  

Income tax expense

        
  

 

 

   

 

 

 

Net loss

     (40 )%   
  

 

 

   

 

 

 

 

76


Table of Contents

Comparison for the Fiscal Years Ended December 31, 2020 and 2019

Net Revenue and Costs of Revenue

 

     Year Ended December 31,                
             2019                     2020              $ Change      % Change  
     (dollars in thousands)                

Net revenue:

          

Platform services, net

   $ 137,418                                                             

Other services

     5,849          
  

 

 

   

 

 

       

Total net revenue

   $ 143,267          
  

 

 

   

 

 

       

Costs of revenue:

          

Card Network fees, net

   $ 64,947          

Issuing Bank fees

     12,511          

Other

     5,356          
  

 

 

   

 

 

       

Total costs of revenue

   $ 82,814          
  

 

 

   

 

 

       

Gross profit

   $ 60,453          

Gross margin

     42        

Net revenue increased by $                , or     %, for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Costs of revenue increased by $                , or     %, for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Our gross profit increased by $                , or     %, for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Our gross margin increased from 42% during the twelve months ended December 31, 2019 to     % during the twelve months ended December 31, 2020.

Compensation and Benefits

 

     Year Ended December 31,                
             2019                     2020              $ Change      % Change  
     (dollars in thousands)                

Salaries, bonus, benefits and payroll taxes

   $ 64,749                                                           

Share-based compensation

     21,757        
  

 

 

   

 

 

       

Total compensation and benefits

     86,506          
    

 

 

       

Percentage of net revenue

     60        

Compensation and benefits expenses increased by $            , or     %, for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Professional Services

 

     Year Ended December 31,                
             2019                     2020              $ Change      % Change  
     (dollars in thousands)                

Professional services

   $ 8,960                                                           

Percentage of net revenue

     6        

 

77


Table of Contents

Professional services expenses increased by $            , or     %, for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Technology

 

     Year Ended December 31,                
             2019                     2020              $ Change      % Change  
     (dollars in thousands)                

Technology

   $ 7,796                                                           

Percentage of net revenue

     5        

Technology expenses increased by $                , or     %, for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Occupancy

 

     Year Ended December 31,                
             2019                     2020              $ Change      % Change  
     (dollars in thousands)                

Occupancy

   $ 3,777                                                           

Percentage of net revenue

     3        

Occupancy expense increased by $                , or     %, for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Depreciation and Amortization

 

     Year Ended December 31,                
             2019                     2020              $ Change      % Change  
     (dollars in thousands)                

Depreciation and amortization

   $ 3,080        

Percentage of net revenue

     2        

Depreciation and amortization increased by $            , or     %, for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Marketing and Advertising

 

     Year Ended December 31,                
             2019                     2020              $ Change      % Change  
     (dollars in thousands)                

Marketing and advertising

   $ 2,080        

Percentage of net revenue

     1        

Marketing and advertising expenses decreased by $            , or     %, for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Other Operating Expenses

 

     Year Ended December 31,                
             2019                     2020              $ Change      % Change  
     (dollars in thousands)                

Other operating expenses

   $ 7,117        

Percentage of net revenue

     5        

 

78


Table of Contents

Other operating expenses decreased by $            , or     %, for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Our Customers and Customer Concentration

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 we are deeply integrated with our Customers in three ways: our technology underpins their core business or supports a core business process, our people become their trusted partner, and our solutions drive their key processes.

Our solutions are helping to power market disruptors, with scalable card issuing programs that have experienced rapid adoption. The outperformance of innovators such as Square and Instacart have underpinned our rapid growth, while we add new innovators to our Platform.

As an indicator of the strength of our relationships, we achieved dollar-based net revenue retention of over     % for the year ended December 31, 2020.

As new Customers begin to scale their transaction volumes on our Platform, and we continue to onboard new Customers, we expect meaningful transaction volume and net revenue diversification over time.

For the year ended December 31, 2019, we generated approximately 60% of our net revenue from our largest Customer, Square, and approximately 11% from Instacart.

For the year ended December 31, 2020, we generated approximately     % of our net revenue from our largest Customer, Square, and approximately     % from Instacart.

 

79


Table of Contents

Quarterly Results of Operations and Other Data

The following tables set forth selected unaudited consolidated quarterly statements of operations data for each of the eight fiscal quarters ended December 31, 2020, as well as the percentage of net revenue that each line item represents for each quarter. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which consist only of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly results are not necessarily indicative of our results of operations to be expected for any future period.

 

    Three Months Ended  
    Mar 31,
2019
    Jun 30,
2019
    Sep 30,
2019
    Dec 31,
2019
    Mar 31,
2020
    Jun 30,
2020
    Sep 30,
2020
    Dec 31,
2020
 
    (in thousands)  

Net revenue

  $ 25,705   $ 35,572   $ 39,184   $ 42,806                                                                            

Costs of revenue

    16,006     18,936     22,575     25,297        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    9,699     16,636     16,609     17,509        

Operating expenses:

               

Compensation and benefits

    14,610     30,493     19,053     22,350        

Professional services

    2,038     2,502     2,137     2,283        

Technology

    1,584     1,817     2,001     2,394        

Occupancy

    824     951     950     1,052        

Depreciation and amortization

    640     767     818     855        

Marketing and advertising

    310     454     218     1,098        

Other operating expenses

    1,414     1,994     2,127     1,582        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    21,420     38,978     27,304     31,614        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (11,721     (22,342     (10,695     (14,105        

Other income (expense), net

    (158     496     580     (220        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense

    (11,879     (21,846     (10,115     (14,325        

Income tax expense

                      (35        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (11,879   $ (21,846   $ (10,115   $ (14,360        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

80


Table of Contents
    Three Months Ended  
    Mar 31,
2019
    Jun 30,
2019
    Sep 30,
2019
    Dec 31,
2019
    Mar 31,
2020
    Jun 30,
2020
    Sep 30,
2019
    Dec 31,
2019
 

Net revenue

    100     100     100     100                                                                            

Costs of revenue

    62       53       58       59          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    38       47       42       41          

Operating expenses:

               

Compensation and benefits

    57       86       49       52          

Professional services

    8       7       5       5          

Technology

    6       5       5       6          

Occupancy

    3       3       2       2          

Depreciation and amortization

    2       2       2       2          

Marketing and advertising

    1       1       1       3          

Other operating expenses

    7       6       5       5          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    83       110       70       75          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (45     (63     (28     (34        

Other income (expense), net

    (1     1       1       (2        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense

    (46     (62     (27     (36        

Income tax expense

                               
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (46 )%      (62 )%      (27 )%      (36 )%         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Key Operating Metric and Non-GAAP Financial Measures

 

     Three Months Ended  
     Mar 31,
2019
    Jun 30,
2019
    Sep 30,
2019
    Dec 31,
2019
    Mar 31,
2020
     Jun 30,
2020
     Sep 30,
2020
     Dec 31,
2020
 

Total Processing Volume (TPV) (in millions)

   $ 3,854     $ 4,793     $ 5,922     $ 7,105                                                                                 

Adjusted EBITDA (in thousands)

   $ (9,837   $ (6,075   $ (8,324   $ (9,791           

Adjusted EBITDA Margin

     (38.3 )%      (17.1 )%      (21.2 )%      (22.9 )%            

A reconciliation of net loss to adjusted EBITDA for the eight fiscal quarters ended December 31, 2020 is as follows:

 

     Three Months Ended  
     Mar 31,
2019
    Jun 30,
2019
    Sep 30,
2019
    Dec 31,
2019
    Mar 31,
2020
     Jun 30,
2020
     Sep 30,
2020
     Dec 31,
2020
 
     (in thousands)                

Net loss

   $ (11,879   $ (21,846   $ (10,115   $ (14,361                                                                               

Depreciation and amortization expense

     640       767       818       855             

Share-based compensation expense

     1,244     15,500     1,553     3,461           

Other income (expense), net

     158     (496     (580     219           

Income tax expense

                       35           
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ (9,837   $ (6,075   $ (8,324   $ (9,791           
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

81


Table of Contents

Quarterly Trends

Net Revenue, Costs of Revenue and Gross Profit

Our net revenue increased in each of the quarters presented and is generally highly correlated to total transaction volume.

Costs of revenue are also generally highly correlated to total transaction volume and can fluctuate period to period due to the timing of Card Network incentives, as incentives arrangements are typically structured based on transaction volume tiers.

Net revenue and gross profit were each negatively affected by service level agreement payments to Customers that totaled $2.8 million in the quarter ended March 31, 2019.

Operating Expenses

The major component of our operating expenses is compensation and benefits. Over the last eight quarters we have invested heavily in product development, operations, customer delivery, and general and administrative functions, and as such, compensation and benefits expense has grown. In the second quarter of 2019 compensation and benefits includes share-based compensation of $13.7 million related to secondary sales of common stock by our employees that were purchased by our existing shareholders. For the fourth quarter of 2019, marketing and advertising expenses increased due to our participation in Money20/20, an annual global fintech conference. We expect such increase in marketing and advertising expenses to increase every fourth quarter because of the conference, other than in the fourth quarter of 2020 due to COVID-19.

Other Income (Expense), net

Other income (expense), net reflects interest income on our marketable securities portfolio, that commenced in the second quarter of 2019, interest expense from a bank loan, an impairment loss on an equity method investment of $0.8 million in the fourth quarter of 2019 and the expense related to the change in the fair value of the redeemable convertible preferred stock warrant liabilities.

Quarterly Key Operating Metric and Non-GAAP Financial Measures

We have experienced increases in TPV over the year ended December 31, 2020 as we continue to add new Customers and as our existing Customers grow their businesses. Our negative adjusted EBITDA margin has generally improved across the periods demonstrating the leverage in our operating model as we have been able to grow net revenue at a faster pace than operating expenses.

Liquidity and Capital Resources

Since our inception through December 31, 2020, we have financed our operations primarily through private sales of equity securities for net proceeds of $                million and, to a lesser extent, bank debt financing of $20.0 million. As of December 31, 2020, our principal sources of liquidity included cash, cash equivalents, and marketable securities totaling $                million, with such amounts held for working capital purposes. Our cash equivalents and marketable securities were comprised primarily of money market funds, U.S. government securities, commercial paper, asset-backed securities, and corporate debt securities. We have generated significant operating losses and negative cash flows from operations as reflected in our accumulated deficit and consolidated statements of cash flows. We expect to continue to incur operating losses for the foreseeable future.

We believe our existing cash and cash equivalents, and our marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our planned continuing investment in product development, platform infrastructure, and global expansion.

 

82


Table of Contents

As of December 31, 2020, we had $                million in restricted cash. This restricted cash includes $6.3 million held at our Issuing Banks to provide the Issuing Bank collateral in the event that our Customers’ funds are not deposited at the Issuing Banks in time to settle our Customers’ transactions with the Card Networks. Restricted cash also includes $1.5 million of cash held at a bank to secure our payments under a lease agreement for our office space.

As of December 31, 2018, we had an outstanding principal balance of $5.0 million under a loan and security agreement. On December 2, 2019, we paid off the outstanding principal balance of $5.0 million under this agreement and closed this loan facility.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

 

     Year Ended December 31,  
     2019     2020  
     (in thousands)  

Net cash used in operating activities

   $ (15,428                   

Net cash used in investing activities

     (100,318  

Net cash provided by financing activities

     139,049  
  

 

 

   

 

 

 

Net increase in cash, cash equivalents, and restricted cash

   $ 23,303  
  

 

 

   

 

 

 

Operating Activities

Our largest source of operating cash is Interchange Fees generated by card transactions through our Platform. Our primary uses of cash from operating activities are for employee-related expenditures and Card Network and Issuing Bank fees. Historically, we have generated negative cash flows from operating activities and have supplemented working capital requirements through net proceeds from the private sales of equity securities. The timing of settlement of certain operating liabilities, including Revenue Share payments, can affect the amounts reported as net cash (used in) provided by operating activities on the consolidated statement of cash flows.

During the year ended December 31, 2019, cash used in operating activities was $15.4 million primarily due to our net loss of $58.2 million, adjusted for non-cash charges of $27.2 million and net cash inflows of $15.6 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of share-based compensation and depreciation and amortization of property and equipment. The changes in operating assets and liabilities were commensurate with the increased transaction volumes and activities of our business and primarily related to a $18.6 million increase in Revenue Share payable and a $17.4 million increase in accrued expenses and other current liabilities, partially offset by a $8.2 million increase in network incentives receivable, a $5.4 million increase in prepaid expenses and other current assets and a $4.0 million increase in settlements receivable.

Investing Activities

Net cash used in investing activities during the year ended December 31, 2019 of $100.3 million was primarily attributable to purchases of marketable securities of $528.3 million and purchases of property and equipment of $4.9 million, partially offset by maturities of marketable securities of $433.6 million.

Financing Activities

Net cash provided by financing activities during the year ended December 31, 2019 of $139.0 million was primarily the result of $143.0 million in net proceeds from the issuance of Series E redeemable convertible preferred stock, net of issuance costs, and $1.0 million in proceeds from the exercise of stock options, partially offset by the bank loan repayment of $5.0 million.

 

83


Table of Contents

Obligations and Other Commitments

Our principal commitments consist of obligations under our operating leases for office space and other non-cancellable purchase commitments. The following table summarizes our contractual obligations as of December 31, 2020:

 

     Payments Due by Period  
     Less than
1 year
     1 to 3
years
     3 to 5
years
     More
than 5 years
     Total  
     (in thousands)  

Operating lease obligations

                                                                                                   

Non-cancellable purchase obligations(1)

              
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

              
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Non-cancellable purchase obligations primarily relate to minimum commitments for certain Issuing Banks and service providers.

In connection with our corporate headquarters lease, we are required to provide the landlord a letter of credit in the amount of $1.5 million. We have secured this letter of credit by depositing $1.5 million with the issuing financial institution. This deposit is classified as restricted cash in the consolidated balance sheets.

Indemnification Agreements

In the ordinary course of business, we enter into agreements of varying scope and terms whereby we agree to indemnify Customers, Issuing Banks, Card Networks, vendors, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive loss, or consolidated statements of cash flows.

Off-Balance Sheet Arrangements

As of December 31, 2020, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Quantitative and Qualitative Disclosures about Market Risk

We have operations within the United States and the United Kingdom, and we are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes and foreign currency fluctuations. Information relating to quantitative and qualitative disclosures about these market risks is described below.

Interest Rate Risk

We had cash, cash equivalents, and marketable securities totaling $                million as of December 31, 2020. Such amounts included cash deposits, money market funds, U.S. government securities, commercial paper, asset-backed securities, and corporate debt securities. The fair value of our cash, cash equivalents, and marketable

 

84


Table of Contents

securities would not be significantly affected by either an increase or decrease in interest rates due to the short-term maturities of the majority of these instruments. Because we classify our marketable securities as “available for sale,” no gains or losses are recognized in the consolidated statement of operations due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary. We have the ability to hold all marketable securities until their maturities. A hypothetical 100 basis point increase or decrease in interest rates would not have a material effect on our financial results.

Foreign Currency Exchange Risk

Most of our sales and operating expenses are denominated in U.S. dollars, and therefore our results of operations are not currently subject to significant foreign currency risk. During the year ended December 31, 2020, a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our consolidated financial statements.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that of our significant accounting policies, described in Note 2 to our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Under the JOBS Act, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of new or revised accounting standards that have different transition dates for public and private companies until those standards would otherwise apply to private companies. We meet the definition of an emerging growth company and have elected to use this extended transition period. As a result of this election, our timeline to comply with these standards will in many cases be delayed as compared to other public companies that are not eligible to take advantage of this election or have not made this election. Therefore, our financial statements may not be comparable to those of companies that comply with the public company effective dates for these standards.

Revenue Recognition

We adopted Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers (ASC 606), effective as of January 1, 2019, utilizing the full retrospective method of adoption. The consolidated financial statements for the year ended December 31, 2019 are presented in accordance with ASC 606. We recognize revenue from contracts with Customers using the five-step method described in Note 2 to our consolidated financial statements. We generate revenue from providing Platform services, which includes Interchange Fees and processing fees, and other services, which includes card fulfillment revenue, to our Customers.

Our contracts with Customers typically include two performance obligations: 1) providing access to our payment processing Platform and 2) providing card fulfillment services. Certain Customer contracts require us to allocate the transaction price of the contract based on the relative stand-alone selling price of the performance obligations which are estimated using an analysis of our historical contract pricing and costs incurred to fulfill services.

 

85


Table of Contents

We satisfy our performance obligation to provide platform services over time as Customers have continuous access to our Platform, and we stand ready to process Customer transactions throughout their term of access. We allocate variable consideration to the distinct month in which the Platform services are delivered. When pricing terms are not consistent throughout the entire term of the contract, we estimate variable consideration in Customers’ contracts primarily using the expected value method. We develop estimates of variable consideration on the basis of both historical information and current trends and do not expect or anticipate significant reversal of revenue in the future periods.

As the Issuer Processor for our Customers, we are the principal in providing services under our contracts with Customers. To deliver the services required by our Customers, we contract with Card Networks for transaction routing, reporting, and settlement services and with Issuing Banks for card issuing, Card Network sponsorship, and regulatory compliance approval services. We control these integrated services before delivery to our Customers, we are primarily responsible for the delivery of the services to Customers, and we have discretion in vendor selection. As such, we record fees paid to the Issuing Banks and Card Networks as costs of revenue.

Share-Based Compensation

We measure compensation expense for all share-based payment awards, including stock options and RSUs, granted to employees, directors, and other service providers, based on the estimated fair value of the awards on the date of grant. The most significant input in determining the fair value of a stock option is the estimated fair value of our common stock. The estimated fair value of our common stock is also used to measure the grant date fair value of RSUs. Additionally, the determination of whether we should ascribe share-based compensation expense to secondary sales of common stock by employees or former employees requires a significant amount of judgement.

Our methods to estimate the fair value of our common stock and to determine share-based compensation related to secondary sales of common stock are discussed below.

Fair Value of Common Stock.    The fair value of the common stock underlying our share-based awards was determined by our board of directors, with input from management and contemporaneous third-party valuations. If awards were granted a short period of time preceding the date of a valuation report, we retrospectively assessed the fair value used for financial reporting purposes after considering the fair value reflected in the subsequent valuation report and other facts and circumstances on the date of grant as discussed below.

Given the absence of a public trading market for our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the AICPA Guide, our board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock including:

 

   

contemporaneous valuations performed at periodic intervals by unrelated third-party specialists;

 

   

rights, preferences, and privileges of our redeemable convertible preferred stock relative to those of our common stock;

 

   

our actual operating and financial performance;

 

   

relevant precedent transactions involving our capital stock;

 

   

likelihood of achieving a liquidity event, such as an initial public offering or a sale of our Company given prevailing market conditions and the nature and history of our business;

 

   

market multiples of comparable companies in our industry;

 

   

stage of development;

 

86


Table of Contents
   

industry information such as market size and growth;

 

   

illiquidity of share-based awards involving securities in a private company; and

 

   

macroeconomic conditions.

In estimating the fair value of our common stock, our board of directors determined our equity value using both the income and the market approach valuation methods. The income approach estimates fair value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate based on the venture capital rates of return as recommended in the AICPA Guide for early stage companies and is adjusted to reflect the risks inherent in our cash flows. The market approach estimates fair value based on a comparison to comparable public companies in a similar line of business.

Prior to March of 2019, the equity valuation was based on both the income and the market approach valuation methods and the Option Pricing Method, or OPM, was selected as the principal equity allocation method. Both these methods were consistent with prior valuations. Starting in the second quarter of 2019, we have used a hybrid method to determine the fair value of our common stock, in addition to giving consideration to secondary sales of our common stock. Under the hybrid method, multiple valuation approaches were used and then combined into a single probability weighted valuation. Our approaches included the use of initial public offering scenarios, a scenario assuming continued operation as a private entity, and a scenario assuming an acquisition of the Company. In addition, we have considered the impact on our valuation estimates from secondary transactions and given weighting to such transactions in our common stock fair value estimates.

Application of these approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses and future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible exit scenarios. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock.

Secondary Sales of Common Stock.    During the years ended December 31, 2019 and 2020, certain stockholders acquired outstanding common stock from current or former employees for a purchase price greater than our estimated fair value of our common stock at the time of the respective transaction. The determination of whether the excess of purchase price over the estimated fair value represents share-based compensation is highly judgmental. We determine whether secondary sales of common stock by employees and former employees result in share-based compensation by evaluating the extent of our involvement in secondary sale transactions, whether the purchaser of the shares is an existing or new shareholder, and the extent the sale price per share exceeds our estimated fair value per share. We recorded share-based compensation expense for the difference between the price paid and the estimated fair value on the date of the transaction of $14.8 million and $                million during the years ended December 31, 2019 and 2020, respectively. Such amounts were recorded in compensation and benefits expense on the statements of operations.

Recent Accounting Pronouncements

See Note 2 to our Consolidated Financial Statements “Summary of Significant Accounting Policies—Adoptions of New Accounting Standards” and “Summary of Significant Accounting Policies—New Accounting Standards Not Yet Adopted” for more information.

 

87


Table of Contents

BUSINESS

Overview

Marqeta created modern card issuing, and we believe modern card issuing is at the heart of today’s digital economy.

When you order food using DoorDash or groceries using Instacart, modern card issuing works in the background as money moves from the app to the delivery driver’s payment card, allowing the driver to pay for exactly what you ordered, and nothing else.

When you buy a big screen TV and pay for it in installments using Affirm, modern card issuing helps move money to the payment card that Affirm uses to seamlessly pay the merchant.

When you receive money from your friend through an app, modern card issuing helps move the funds to your debit card, making it instantly available to you to make purchases.

Marqeta’s modern card issuing platform, or our Platform, empowers businesses like these to create customized payment cards that provide innovative payment experiences for their customers and end users. Before the rise of modern card issuing, creating cards was slow, complex, and subject to mistakes. Marqeta helps solve these problems. Our Platform, powered by open APIs, enables businesses to develop modern, frictionless payment card experiences for consumer and commercial use cases that are either the core of, or in support of, their core business.

The digitization and commercialization of electronic payments is accelerating as commerce continues to shift to online and mobile payments. Over the last ten years, the reach of card-based payments expanded as technology eased merchants’ acceptance of card payments. In contrast, card issuing saw relatively little innovation as financial institutions were the primary users of card issuing technology, and their needs largely remained the same. Consequently, those cards had limited functionality.

As technology-centric organizations with novel business models and needs, such as Uber and Expensify, have gained popularity over the last decade, the inherent constraints of legacy issuing technology needed a new approach. Developers, technical product managers, and visionary entrepreneurs desire the tools and infrastructure necessary to build their products to serve customers around the world. They require open, configurable, and well-documented APIs to embed advanced payment technologies natively into their platforms to programmatically authorize and direct these payment flows without needing to integrate directly with Issuing Banks and Card Networks. Open APIs have spurred innovation in previously entrenched industries.

We built the Marqeta Platform to address these needs. Our modern architecture allows for flexibility, a high degree of configurability, and accelerated product development, democratizing access to card issuing technology. Marqeta’s open APIs provide instant access to our highly scalable, cloud-based, and configurable payment infrastructure that enables our Customers to launch and manage their own card programs, issue cards to their customers or end users, and authorize and settle payments transactions.

Our business is supported by our first-mover advantage and a deep moat of technology, customer, and industry expertise. 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. Modern card issuing is secure card issuing and processing delivered via an open API platform that enables card issuers to create customized payment card products that leverage a just-in-time funding feature, authorizing their end users’ transactions in real-time. 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. We believe that Marqeta is now the ‘de facto’ modern card issuing Platform and that our continuous innovation further cements and expands our market-leading position.

 

88


Table of Contents

We believe we are deeply integrated with our Customers in three ways: our technology underpins their core business or supports a core business process, our people become their trusted partner, and our solutions drive their key processes. In addition, our usage-based business model provides a win/win for both our Customers and us: as their businesses thrive, our net revenue grows. The strength and durability of our Customer relationships are evidenced by our year-over-year net revenue growth of over     % and dollar-based net revenue retention3 of over     % for the year ended December 31, 2020.

In 2020, the Marqeta Platform processed approximately $60 billion of card purchase volume, up 172% from the approximately $22 billion in 2019. The full year 2020 volume is less than 1% of the annual $6.7 trillion of purchase volume conducted through U.S. issuers in 2019, as estimated by The Nilson Report, and a fraction of the $30 trillion of value exchanged annually across global Card Networks, as estimated by The Nilson Report. Our products meet the card issuing and transaction processing needs of commerce disruptors and large financial institutions alike. Marqeta has already emerged as a card issuing platform category leader in many disruptive verticals, including on-demand delivery, alternative lending, expense management, disbursement, digital remittances, and digital banks, and our Platform is sought out by large financial institutions to improve their existing offerings and stay competitive with technology-focused new market entrants.

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 $143.3 million and $                 million for the years ended December 31, 2019 and 2020, respectively, an increase of more than     %. We incurred net losses of $58.2 million and $                 million for the years ended December 31, 2019 and 2020, respectively.

Trends in Our Favor

Several significant secular tailwinds strengthen our market-leading position, growth strategy, and competitive advantage. Innovations in technology and the internet have greatly increased the digitization and velocity of worldwide commerce. Fundamental changes in global commerce are creating a critical need for the digitization and transformation of the payments ecosystem, setting the stage for industry disruption. This opens the door for meaningful innovations in card issuing, transaction processing, and the digitization of global money movement.

The Shift to Digital Payments is Accelerating

Digital commerce is increasing rapidly. Visa estimates that from 2016 to 2022, the share of global retail commerce conducted online is expected to more than double from 9% to 19%. Similarly, Euromonitor projected electronic payments would represent 36% of the total global transaction volume by 2020, up from 31% in 2017. We believe that the COVID-19 pandemic has accelerated these shifts to digital payments. Indeed, Bain & Company estimates that because of the effects of COVID-19, the percentage of global digital transaction volumes in 2025 will increase from 57% to 67%. According to McKinsey, a half-decade of change has happened

 

3 

Dollar-based net revenue retention measures our ability to increase net revenue across our existing Customer base through expansion of transaction volume offset by any reduced net revenue and loss of Customers in a given period. Dollar-based net revenue retention is calculated as net revenue derived during a given period from Customers existing at the beginning of the period, divided by net revenue from these same Customers in the prior period. This metric reflects any attrition of net revenue and loss of Customers during the current period.

 

89


Table of Contents

in a few months as a result of COVID-19, with global cash payments dropping four to five times the annual decline rates seen over the last few years as consumers and businesses purchase a wider range of goods and services online.

We believe these digital commerce and electronic payment trends are the precursors to increased volume across the Marqeta Platform.

Software and Payments are Converging

Payments are not only becoming more digital but are also integrated more frequently into consumer and business applications. Payments capabilities are already seamlessly embedded in software applications such as ride sharing, home rental, messaging, and digital marketplaces. With this evolution, software companies are partnering with payments companies to provide simple, scalable, and configurable payment services across multiple geographies to meet their end users’ needs.

The Experience Economy is Driven by Developers who Need Modern Platforms

Across a range of industries, user experience is emerging as a primary battleground where businesses compete. Consumers now expect elegant digital experiences in nearly every aspect of their lives, from driving, ordering food, and controlling their home devices, to paying bills and banking.

If the basis of a company’s success has become its ability to create relevant and compelling user experiences, it is the software developer who leads this process. It is now developers who influence some of the most important business decisions, and they, in turn, demand modern platforms that are most likely to keep up with the pace of their imaginations—with tools and services that are of the highest configurability, flexibility, and speed.

Modern platforms with open APIs are democratizing access to ecosystems, including payments, giving businesses and their developers the tools they need to embed payments into their offerings with minimal friction. In the past, payments have been the domain of a very limited number of players with specific expertise, and now, with modern platforms, developers have convenient access to this expertise.

Trust in New Payment Technology is Expanding

The proliferation of digital commerce required consumers and businesses to become comfortable with digital payments. Two decades after PayPal transformed online payments, consumers and businesses are increasingly turning to digital payments, digital banks, and payment technology companies for a wide range of financial services. Because of COVID-19, more people are willing to rely on digital payments for a wider variety of services. PYMNTS research finds that 40% of all U.S. consumers—approximately 99 million people—do not plan to resume regular in-store shopping.

The Rise of Globalization, the Gig Economy, and Open Data

With or without physical travel, global interconnectedness is now a fact of life for users of social networks, ride sharing platforms, ecommerce marketplaces, peer-to-peer payment apps, and personal financial applications. The accelerating pace of globalization requires businesses to find payments solutions that span geographies, currencies, and payments infrastructure. In addition, the gig economy has created new expectations about the nature of labor, transforming how and when people work and get paid. Furthermore, through digitization, advancements in technology, and various regulatory reforms, global payments data is increasingly available to financial technology innovators. The data generated by payments transactions represents a significant opportunity to minimize fraud, thereby expanding trust in new payments technology. Extensive data also helps to improve business intelligence and increase the value of payments products. These trends create numerous new use cases for relevant user experiences, digital payments, and software integrations. To take advantage of these opportunities, these emerging businesses need access to a simple, agile, scalable, and reliable platform, and we believe we are only at the beginning of this transformation in multiple geographies.

 

90


Table of Contents

The combination of these tailwinds at Marqeta’s back propels us forward. Collectively, we believe they explain why Marqeta’s simple, trusted, and scalable global modern card issuing Platform is successful and why it continues to meet the growing needs of innovative businesses.

Our Industry

According to The Nilson Report, in 2019, consumers and businesses worldwide made over 440 billion purchase transactions on global network cards, aided by approximately 24 billion payment cards in circulation. Since the advent of card-based payments in the 1940s and 1950s, card payments have become the backbone of commercial activity due to their ease of use and widespread acceptance. A complex ecosystem underpins these transactions, consisting of Issuing Banks and Acquiring Banks, Acquirer Processors, Issuer Processors, and the Card Networks that facilitate the exchange of information and funds behind each transaction.

 

LOGO

Legacy Payments Ecosystem

 

 

   

Issuing Bank: The financial institution that issues the payment card (credit, debit, or prepaid) either on its own behalf or on behalf of a card issuer.

 

   

Issuer Processor: Provides the technology platform, ledger, and infrastructure to support a card issuer and connects with a Card Network to facilitate payment transactions.

 

   

Card issuer: A business that issues customized card products to its end users.

 

   

Card Networks: Provides the infrastructure for settlement and card payment information that flows between the Issuer Processor and the Acquirer Processor.

 

   

Acquirer Processor: Provides the technology that facilitates the flow of card payment information through Card Networks to the Issuing Bank.

 

   

Acquiring Bank: The financial institution that merchants use to hold funds and manage their business. The Acquiring Bank may work with an Acquirer Processor to provide access to the Card Networks. The Acquiring Bank is also referred to sometimes as the merchant bank.

While the acquirer-facing side of the payments ecosystem has seen significant technology innovation over the last several years, the issuer-facing side has remained largely stagnant. There are approximately 300 Acquiring Banks within the United States. However, there are only approximately 200 Issuer Processors globally. Large financial institutions have historically relied on inflexible and complicated legacy issuer processor infrastructure. This in turn makes launching new card programs and supporting cutting-edge use cases difficult and time consuming — ultimately stifling innovation.

Modern Payments Ecosystem

Today’s card issuers include technology-centric companies that are looking to digitally integrate payment cards into their platforms and process a rapidly growing number of complex payments transactions. Twenty-first

 

91


Table of Contents

century products, including online marketplaces, sharing economy platforms, digital banking, and on-demand services, require fast to launch, configurable, and reliable payment solutions. To meet these demands and respond to the changing behaviors of end users, businesses require a modern card issuing and transaction processing platform that overcomes legacy technology constraints while also being able to integrate seamlessly with Issuing Banks and Card Networks.

 

LOGO

 

Modern card issuing is secure card issuing and processing delivered via an open API platform that enables card issuers to create customized payment card products that leverage a just-in-time funding feature, authorizing their end users’ transactions in real-time. 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. This 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 issuing process. 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.

In other words, 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. We believe Marqeta has built such a platform.

Our Platform and Products

Marqeta provides a single, global, cloud-based, open API Platform for modern card issuing and transaction processing. In contrast to legacy infrastructure, the Marqeta Platform provides next generation payment experiences for tech-driven, developer-led companies and is well positioned to address the payment needs of commerce disruptors, tech giants, and large financial institutions. Our Platform is also sought out by large financial institutions to improve their existing offerings and stay competitive with digitally native new market entrants.

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

 

92


Table of Contents

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.

 

LOGO

 

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 (e.g., Apple Pay, Google Pay, Samsung Pay) that are configured to its individual business needs with the extensive documentation libraries that are available to our Customers on our website. New Customers do not need to have deep payment expertise to issue cards and process transactions. Marqeta’s intuitive and feature-rich Platform is instantly available in our testing environment so developers can build cutting-edge embedded payment capabilities. This immediate availability of features within the developer sandbox environment promotes experimentation and ultimately accelerates product launch and iteration cycles. Once a card program is live, developers have access to rich data and insights that inform future improvements and new programs.

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, including Visa, Mastercard, and Discover Network, enabling developers to use Marqeta’s single unified platform for all of their payments integrations. Developers who build on our Platform take advantage of our APIs and services to quickly build products for their card issuing and payment processing needs.

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. Our cloud-based solution is designed for high transaction volumes as evidenced by our rapid total processing volume or TPV4 growth from approximately $2 billion in 2017 to approximately $60 billion in 2020 and reliable performance with 99.995% uptime in 2020. Our Customers can create and deploy new card programs in days, not months or years.

Configurable: The Marqeta Platform is highly configurable and is able to serve use cases previously unaddressed by legacy systems, such as financing at the point-of-sale in the lending industry. Our Platform’s configurability significantly expands the categories of businesses that can begin issuing their own cards to

 

4 

TPV represents the total dollar amount of payments processed through our Platform, net of returns and chargebacks.

 

93


Table of Contents

solve complex payment needs. Developers choose from hundreds of our open API endpoints to easily enable custom features such as spend, authorization, and issuing controls, JIT Funding, and application tools that are PCI compliant, allowing maximum configurability to meet their business needs.

Innovative: Marqeta is a hub for innovation. Instant card issuance, provisioning to digital wallets, JIT Funding, and dynamic spend controls enable our Customers to operate with unmatched speed and control. Real-time notifications on our dashboard provide Customers with rich insights on spend patterns and card program performance. We partner with our Customers to develop cutting-edge use cases applicable to their industry vertical. As a result, developer teams seeking scale and innovation proactively reach out to Marqeta for best-in-class solutions. As our Customers entrust us with increasing scale and additional innovation, we are able to offer even greater performance efficiency, configurability, and better products. This network effect attracts additional innovative and growth-minded Customers.

Trusted: Our Platform is trusted by some of the world’s largest financial institutions and commerce disruptors to perform at scale. From transaction initiation through completion, the Marqeta Platform incorporates real-time confirmation of payments to our Customers in seconds. We meet the highest standards of PCI compliance and provide a trusted environment for card issuing and payment processing with security, transparency, and real-time information. Our industry-first JIT Funding solution enables our Platform to leverage contextual data to provide real-time insights and alerts to prevent transaction fraud and puts the Customer in control of their end users’ transactions. With built-in redundancy, disaster recovery, and failover capabilities, businesses can be confident in the continuity of our solution even during high transaction volume spikes.

Our Products

Marqeta’s modern, global Platform helps many of the world’s innovators build, run, and optimize their card programs. Our innovative products are developed with deep domain expertise and a customer-first mindset. At its core, our Platform offers three primary capabilities: Marqeta Issuing, Marqeta Processing, and Marqeta Applications to launch, scale, and manage card programs.

 

 

LOGO

 

94


Table of Contents

Marqeta Issuing

We enable our Customers to issue physical, virtual, and tokenized cards. With approximately 275 million cards issued through the Marqeta Platform as of December 31, 2020, 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 like Apple Pay and Google Pay. 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 simple and quick access to a multitude of controls, customizations, and features to ensure an industry-leading user experience while minimizing fraud.

Configure cards with open APIs: Customers can easily define card attributes for where and how a card is used. These use cases and restrictions include ATM, online, or point-of-sale use; ability to restrict or accept use in certain countries or currencies; and address or postal code acceptance. Single-use cards can be configured to disable after one transaction, or multi-use cards may be leveraged to last until a specific expiration date.

Build, test, and launch cards: As part of Marqeta’s issuing services, 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. In this testing environment, developers can seamlessly set up Primary Account Numbers, PINs, Card Verification Codes, and more. These features enable developers 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.js library; this has the added benefit of dramatically reducing the workload necessary to comply with PCI requirements. Cardholders can securely activate their cards, set PINs, and retrieve sensitive card data in web and mobile apps without storing or transmitting information on Customer proprietary servers.

Customize cards: Through Marqeta’s suite of issuing and card program services, Customers control the design and feel of their physical and virtual cards. The cards’ extensive customization features, which include design, marketing, and communications, and the promotional materials delivered with the card, all help 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.

Manage card programs: The Marqeta Platform allows Customers to manage card issuance over the entire card lifecycle. Through our dashboard, Customers can order, activate, set expiration, suspend, and terminate cards. They can also manage lost, stolen, and damaged cards via our APIs. Additional features include card fulfillment, customization of card design, and shipping in bulk. Customers can also integrate Interactive Voice Response for card activation, PIN setting, balance inquiry, and lost or stolen card reporting into their own card programs.

Our deep card issuing capabilities are powering some of the world’s most transformative card programs. We helped Square design and scale Square Card, its merchant debit card issued through the Marqeta Platform. Square Card is accepted anywhere that Mastercard debit cards are accepted (including in-person, online, and at ATMs). Merchants that use Square receive the Square Card for free, and their Square Card is connected directly to their Square account balance. Once merchants receive a payment, and the money they earned is reflected in their account balance, they can immediately spend that money through their Square Card—without waiting days for the funds to transfer to their bank account. For small and medium businesses, Square Card is solving critical cash flow issues and transforming the way they operate. By using Marqeta’s products, Square has the ability to monitor card activation rates and transactions that flow through the Square Cards to offer customized promotions to its customers.

 

95


Table of Contents

We also partner with some of the world’s largest card issuers. For example, our card-issuing technology will enable J.P. Morgan to instantly provision commercial cards into digital wallets for commercial card customers, accelerating the issuance process and reducing the probability of fraud in each transaction.

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, and 3D Secure, or 3DS, and EMV chip. Customers can securely authenticate online and in-store transactions using a multitude of supported cardholder validation mechanisms.

Configurable spend controls: Customers can reduce fraud by limiting where and how their end users can transact. Transactions can be authorized based on custom rules configured through the Marqeta Platform, which allows businesses to apply unique business logic on a per transaction basis to ensure complete control over spend approval. 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.

Just-in-Time Funding: Using Marqeta’s industry-first JIT Funding functionality, Customers can programmatically authorize and fund each transaction while participating in the approval decision in real time, freeing up capital and increasing cash flow. Utilizing this feature, each card maintains a zero-amount balance until the card is used and approved in real time, assuming all validations succeed. By configuring an endpoint in a given system, Customers can opt-in to receive and respond to JIT Funding requests from Marqeta and directly participate in the authorization decision. 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:

 

 

LOGO

 

96


Table of Contents

For example, when Instacart shoppers use a physical Marqeta card at the point-of-sale to purchase groceries at retail locations, Instacart can leverage our JIT Funding with each card maintaining a zero-dollar balance until the card is used. Upon transaction initiation, transactions flow to Marqeta for validation. Instacart uses our Platform’s JIT Funding capabilities to combine Marqeta’s inherent validation checks and data insights with Instacart’s proprietary data inputs such as merchant checks, whether the Instacart shopper is on-shift, expected transaction amount, and merchant location, to further validate transactions. Once all validations are confirmed, the Marqeta Platform automatically sends an authorization message to the merchant through the Card Network, and then moves funds from the funding source into the appropriate account to settle the transaction. By configuring these transaction validation parameters using the data provided by the Marqeta Platform, Instacart can ensure a seamless checkout process and significantly reduce the likelihood of fraud.

Real-time notifications: Our Platform delivers rich functionality built around our core capabilities in issuing and processing. 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. For example, as soon as a food delivery order is paid for, a Customer can receive a push notification from Marqeta and use it to generate an SMS to notify its cardholders (e.g., “Your order will arrive shortly.”). Our Platform supports several event types, including card events, dispute events, and transaction events. For example, cardholders will receive notifications on returns and refunds as they occur to help our Customers apply the right amount of credit to accounts in a timely manner. For dual-message transactions where clearing and settlement happen after authorization (e.g., restaurant tips after the meal price is authorized), Marqeta receives clearing files from the Card Network, processes the included transactions, creates the respective transaction on the Marqeta Platform, and communicates to Marqeta’s Customer via push notification.

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. For example, inserting a “Booking ID” into the transaction can help our online travel agency Customers more quickly correlate records (e.g., records from the ordering system) with transactions through our Platform.

Marqeta Applications

Using the Marqeta Platform, 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 programs are as successful as possible.

 

LOGO   LOGO   LOGO
Developer tools   Program administration   Fraud protection

 

LOGO   LOGO   LOGO
Case management   Compliance and reporting   Data intelligence

Marqeta applications allow Customers to:

Utilize developer tools: Developers have access to Marqeta’s wealth of tools, including a private sandbox, APIs, SDKs, 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.

 

97


Table of Contents

Streamline program administration: Our Platform is transforming how our Customers can approach 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 card issuers combat fraud. Using Marqeta’s two-step system—a rules-based authorization and decisioning engine plus a machine learning scoring algorithm—Customers can configure rules using a variety of inputs to approve or decline transactions. Real-time machine learning provides an extra layer of security, returning real-time fraud scores and recommendations on transaction decisions. These dynamic controls and fraud scores help Marqeta’s Customers to flag and avoid unauthorized charges, as well as other fraudulent activities.

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 for compliance reporting such as anti-money-laundering and Bank Secrecy Act, or BSA, monitoring, as well as know-your-customer requirements. We provide valuable insights, including foreign transactions made by a cardholder, and the number of times a cardholder withdraws or transfers money in a day. We are compliant with industry regulations for data security and privacy. Our solutions are certified as compliant with PCI DSS and 3DS, 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. Data is easily filtered by date, transaction type, and Card Network to monitor program details.

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 visionary entrepreneurs at innovative companies. As of December 31, 2020, we had approximately 57 million active cards5 and during the twelve-month period ending December 31, 2020, we processed approximately 1.6 billion transactions on our Platform across the globe.

We employ a usage-based model, based on payment volumes, that aligns our interests with those of our Customers. We derive the majority of our revenue from Interchange Fees generated by card transactions through our Platform. In addition to Interchange Fees, we also generate revenue from other processing services, including monthly platform access, ATM fees, fraud monitoring, 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 the merchant. Our agreements with Issuing Banks provide that we receive 100% of the Interchange Fees for processing our Customers’ card transactions. Our Customer contracts typically include provisions under which we share a portion of Interchange Fees with our Customers, referred to as “Revenue Share.” As Customers increase transaction volumes on our Platform, they may earn an increased percentage of Revenue Share. Sharing an increased percentage of Interchange Fees with our Customers aligns our interests with our Customers’ growth and builds deeper customer relationships.

 

 

5 

Active cards are defined as the number of transacting cards with one or more successful clearing events during the preceding twelve months.

 

98


Table of Contents

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 are important to our customer value proposition. Greater transaction volumes also allows us to achieve better volume pricing with our Issuing Banks and Card Networks, which we can pass along to our Customers. This, in turn, can make our product offerings more competitive.

Our Platform enables new and existing Customers to create innovative and configurable card issuing programs and to increase their transaction volumes. Additionally, as we expand our use cases, product offerings, and global footprint, we help our Customers expand into new verticals, programs, markets, and geographies. We have experienced significant success with this strategy to date. For the year ended December 31, 2020, we achieved year-over-year net revenue growth of over        % and dollar-based net revenue retention of over        %.

Our Strengths

The following strengths and advantages power our business model:

Modern Card Issuing Trailblazer: Marqeta created modern card issuing. We believe we have the first-mover advantage and we have leveraged it to establish strong brand recognition and capture significant market share in an industry where customer retention is key and innovation can provide outsized rewards. We believe being first in the market and one of the only modern platforms focused on issuing and processing gives us a deep moat of technology, customer, and industry expertise. Our modern Platform offers multiple issuing and processing innovations, including open APIs, JIT Funding, and Tokenization as a Service. We continue to innovate on our Platform, and we believe that this innovation, coupled with our deep expertise, keeps us in a market-leading position.

Widening the Gap via Continuous Innovation: We believe that we continually increase our market-leading position by innovating on our flexible, agile, and extensible Platform to bring new use cases to market. As we partner with our existing Customers to support their ambitious global projects and develop cutting-edge use cases for each vertical, we also attract new Customers seeking best-in-class solutions. The highly configurable Marqeta Platform is agile out of the box and at scale. Our developer-centric APIs, sandboxes, and SDKs, written in modern programming languages, help our Customers go to market with unmatched speed. We offer that same flexibility and extensibility when Customer programs are live and in-market so that they can expand to new geographies and verticals. These unique characteristics make our Platform valuable to existing Customers and attractive to prospective Customers. We enable innovation that introduces opportunities for further innovation by Customers, creating a strong network effect that further cements and expands our market-leading position.

Enduring Customer Relationships: Our dollar-based net revenue retention was over                % for the year ended December 31, 2020, illustrating the strength and durability of our Customer relationships. We believe we are deeply integrated with our Customers in three ways: our technology underpins their core business or supports a core business process, our people become their trusted partners, and our solutions drive their key processes. 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. Indeed, our mutually beneficial contractual terms are designed to provide a win/win for both our Customers and us; as their businesses thrive, our net revenue grows.

People-centric Culture and Values: Nothing is more powerful than a unified team focused on collective results. We believe our culture of customer centricity, innovation, teamwork, and clarity of mission is why Customers trust us with their mission critical payments needs. 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 also believe our culture helps us hire and retain best-in-class talent. We believe we have created an environment where everyone belongs, and employees are empowered to do the best work of their lives.

 

99


Table of Contents

The aggregate effect of these strengths and advantages is a strong competitive moat, predicated on our scale, Customer relationships, and the technological complexities that we have managed to streamline 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.

Market Opportunity

We believe the opportunity within payments and modern card issuing is tremendous. Global money movement amounted to $70.3 trillion in 2019, representing approximately 4 trillion individual payment transactions, according to Euromonitor. The Nilson Report estimates that in 2019, approximately one-tenth of these transactions was carried out across global network cards, representing approximately $30 trillion of value exchanged. In 2020, the Marqeta Platform processed approximately $60 billion of card purchase volume. This is less than 1% of the annual $6.7 trillion of purchase volume conducted through U.S. issuers in 2019, as estimated by The Nilson Report. We believe that our share of this massive opportunity will continue to increase due to our unique Platform, competitive advantages, and a strong culture of innovation.

The Marqeta Platform is designed to meet the card issuing and transaction processing needs of both the new use cases created by technology innovators and the traditional use cases. We have built products that power commerce disruptors and large financial institutions alike. According to an Edgar Dunn study we commissioned, new verticals such as on-demand delivery, alternative lending, expense management, disbursement, digital remittances, and digital banks already command significant payment volumes today. Based on the Edgar Dunn study, these new verticals represented over $2 trillion of card processing volume in 2019, and this volume is expected to more than double to $4.8 trillion in 2023. Marqeta has already emerged as a category leader in many of these verticals, and we expect to continue to increase our market share, both in these verticals and new use cases, as the number of transactions and transaction volumes both rapidly grow. Today, the top 20 U.S. issuers support the processing of more than $4.5 trillion in annual payments volume, according to The Nilson Report. Our Platform is sought out by large financial institutions to improve their existing offerings and stay competitive with digitally native new market entrants.

As Marqeta continues to expand its international footprint and capabilities, we expect to leverage our Customers’ international growth, as well as onboarding new international Customers.

Our Growth Strategy

Our market opportunity is tremendous, and we intend to expand our addressable market and increase our revenue by pursuing the following strategies:

Grow With Our Existing Customers. Our current Customers include some of today’s leading commerce disruptors, digital banks, tech giants, and large financial institutions. Many of these Customers are experiencing rapid growth on our Platform. We participate in our Customers’ growth alongside them because as our Customers’ businesses scale and their transaction volumes increase, so does our revenue. Through our Platform and business strategy, we become an integral part of our Customers’ operations and a trusted partner in enabling their success. We intend to retain and expand our existing Customer relationships through excellent Platform performance, Customer service, and further innovations to our products and services.

Onboard New Customers. We believe our opportunity to attract new Customers to our Platform is massive. Market shifts towards digitization and the need for modern card issuing and transaction processing is increasingly becoming a necessity for a greater number and variety of businesses globally. We intend to solidify our reach in existing categories and expand to new use cases and industry verticals. Our sales teams focus on

 

100


Table of Contents

attracting an even greater number of commerce disruptors, digital banks, and tech giants. We also intend to expand our relationships with large financial institutions as we help them compete in the new 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.

Broaden Our Global Reach. We operate on three continents today and intend to accelerate our international expansion in the future. Because our Customers employ digital models that transcend borders, we are constantly extending our Platform’s reach. This allows us to offer a single global Platform to all Customers, no matter where they originate or how they expand. With Marqeta, developers only have to integrate once to gain access to a global market and to take advantage of all of the tools our Platform offers for a global reach.

Develop New Products and Services. 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 best-in-class APIs allow us to rapidly develop new products, features, and use cases to serve our current and future Customers. For example, in 2020, we debuted Marqeta’s Tokenization as a Service product. Tokenization as a Service allows non-Marqeta card programs to benefit from our modern card issuing Platform, tokenization expertise, and built-in certifications with digital wallets and the Card Networks. This new offering is available for any card type—including cards not directly issued on the Marqeta Platform—and is used to instantly provision cards into a mobile wallet. We also intend to build out full credit servicing capabilities that we believe will unlock significant market and customer opportunities.

Expand Our Platform. Our vision is to democratize money movement globally. Over time, we intend to broaden our Platform by introducing additional capabilities and functionality to meet the evolving money movement needs of our Customer base. We will continue to invest in our Platform to create additional deployment controls, increased stability, greater flexibility, and data-driven decision-making, all within increasingly shorter timeframes. We plan to build new APIs to deliver for our Customers and expand our migration to the cloud to provide enhanced scalability, paving the way for data localization options and reducing our maintenance burden. We continue to deepen our ability to execute in and across multiple regions so our Customers can expand their businesses globally while keeping the same single underlying processing platform interfaces and execution. 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.

Invest In Our People. We believe we can advance our growth strategies because of our deeply talented team. As of December 31, 2020, 51% of our employees were part of our Product, Technology, and Design teams. We intend to continue to invest in talent to further increase both the depth and breadth of our products and services. We believe we have already attracted some of the world’s best technical talent. The majority of the team works in Oakland, a culturally rich and diverse community adjacent to Silicon Valley, while others are part of our dispersed workforce. Our geographic flexibility enables us to attract top tier talent from a large pool of candidates.

Culture & Values

Our mission is to be the global standard for modern card issuing, empowering builders to bring the most innovative products to the world. Great missions are achieved by great teams, and at Marqeta, everything starts with our culture. A great culture attracts and retains great people who find their purpose in serving our Customers.

 

101


Table of Contents

Our culture is built on the foundation of seven core values:

Everyone Belongs

We realized some time ago that words like “company” and “customer” are just another way to say “people.” Companies are collections of people who unite behind a common mission and then align behind values that bind them together. Each person on our team is called a Marqetan. On their first day, we share with each Marqetan our values. Key among these is “Everyone Belongs.”

 

 

LOGO

Every Marqetan brings their authentic self to work every day. When a new Marqetan walks through the door, we strive to make that person feel that they belong and are empowered to do the best work of their lives. We respect, value, and include each other, demonstrating empathy and celebrating diversity.

As part of our onboarding process, we also ask each new employee an empowering question: “What is your superpower?” We believe everyone has a superpower. It might be singing, it might be baking, it might be coding. Whatever it is, we want that person to embrace it, share it, and celebrate all of our unique abilities, viewpoints, and personalities together as Marqetans. United, these superpowers allow us to be more than just the sum of the people who work at Marqeta. With over 500 Marqetans, we believe that each Marqetan brings their own unique superpower to the company. The humanity of our collective superpowers and individuality is the driving force behind Marqeta’s category-defining technology and modern card issuing Platform. People come to Marqeta to do the best work of their lives.

Build One Marqeta

Nothing is more powerful than a unified team of people who are focused on the results of the team over their individual success. If you want to go fast, go alone. If you want to go far, go together.

 

 

LOGO

We do what’s right for all of us, not one of us. We succeed together. We center our products and services around openness, accessibility, and simplicity. Our relationships are with partners who align with our values of trust, transparency, and inclusiveness.

Connect the Customer

Customers are the people we seek to delight every day. Our Customers consistently tell us that our ability to work at speed, cut through complexity, and always have their end users’ experience at heart helps them focus on what they do best – building innovative products and serving their customers.

 

 

LOGO

We build enduring and trusting relationships with our Customers, setting the bar high, and striving to exceed them every day through delightful experiences.

 

102


Table of Contents

Lead Innovation

Because of our value of Lead Innovation, we believe we are the first modern Platform to market with multiple issuing and processing innovations, including the first open APIs, JIT Funding, and Tokenization as a Service.

 

 

LOGO

We love to lean into the unknown and find the path forward. We welcome the new, embrace change and challenge limits, and find new heights.

Deliver Results

Success is measured in results. At our heart, we are developers who build for developers, and we have not forgotten our entrepreneurial roots. Customers have chosen to build and scale their businesses on our Platform because we understand that our Customers need to deliver for their customers.

 

 

LOGO

We keep it simple and find a solution. We act like owners and deliver the best outcome for the Customer. We are reliable and consistent.

Quality First

Quality is at the heart of everything we build. At its core, quality means that we meet or exceed every Customer’s expectations.    

 

 

LOGO

We are proud of the work we do and strive to improve it every day. Everything we build is strong, sturdy, and lasting. When you provide high-quality products and do great work, people remember it and trust you.

Marqeta Cares

Our purpose has never been more clear: pay it forward. We aspire to a positive global impact by making complex payment infrastructure accessible and leveling the playing field for innovation and financial access across communities. Our celebration of diversity and community is critically important to our culture and why we are proud to be headquartered in Oakland. Our commitment to the people in the communities we serve is embodied in our value of Marqeta Cares:

 

 

LOGO

We invest in corporate social responsibility. Our people, technology, and resources make a positive impact in our community, and we are responsible stewards of our environment.

We created Marqeta Cares, our social impact initiative, as our corporate giving program and to help select the charities we support. Marqeta Cares seeks to create inclusive communities and build pathways to economic prosperity. We do this by leveraging our financial and human capital to support nonprofit organizations that advance economic opportunity for under-resourced and under-served communities. We approved up to 400,000 shares of our common stock to be contributed to the Marqeta Cares program over the next ten years, beginning in 2020. Marqeta Cares will leverage these resources to make targeted and thoughtful donations where our equity and dollars can make a meaningful difference.

 

103


Table of Contents

To help implement our Marqeta Cares goals, Marqeta has partnered with an experienced donor-advised fund, operated as a 501(c)(3) public charity, that will serve as the legal vehicle for implementing Marqeta Cares’ corporate philanthropic vision. In the third and fourth quarters of 2020, we made cash contributions to the donor-advised fund that we believe represented a fair market value of approximately 40,000 shares. Finally, we are also partnering with Pledge 1%, an advisory non-profit organization that assists companies in donating to charitable causes.

Our investment in our culture and values is the driving force behind our innovation, customer centricity, and excellence. This is why extraordinary people choose to come to Marqeta to do the best work of their lives, and we believe this is why Customers choose us as a partner to scale their businesses globally.

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. Currently, we provide solutions in the following verticals:

 

   

Commerce Disruptors

 

  ¡   

On-Demand Services

 

  ¡   

Buy Now, Pay Later

 

  ¡   

Expense Management

 

  ¡   

Travel

 

  ¡   

Alternative Lending

 

  ¡   

eCommerce

 

  ¡   

Disbursements & Incentives

 

   

Digital Banks

 

   

Tech Giants

 

   

Large Financial Institutions

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 partner with Issuing Banks to provide services to Marqeta that include card issuance, Card Network sponsorship, and creating deposit accounts used to settle our Customers’ transactions. Our contracts with Issuing Banks entitle Marqeta to all of the Interchange Fees generated from our Customers’ card programs and obligate us to pay all Card Network fees associated with our Customers’ card transactions. Issuing Banks require Marqeta to comply with their requirements and those of the Card Networks necessary to sponsor the Customer’s card programs.

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. Marqeta pays the Issuing Banks a fixed fee (either a fixed percentage of the purchase volume or a fixed fee per transaction) as compensation for the services they provide to Marqeta.

 

104


Table of Contents

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 Discover Network, and a number of PIN networks, to process our Customers’ transactions on our Platform. Marqeta arranges for our Customers to use one or more of the available Card Networks, and we pay standard fees to Card Networks directly, or indirectly through reimbursement of these fees upon the settlement of card transactions by the Issuing Banks. Our contracts with the Card Networks also provide us with certain monetary incentives based on the volume of our Customers’ transactions processed through the respective Card Network. Additionally, we partner with Card Networks to develop our processing capabilities in international locations as we expand globally.

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 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.

We provide all of our Customers issuer processor services, and for most of our Customers, we also act as the program manager. As a program manager, we are responsible for ensuring compliance with the Issuing Bank’s requirements and Card Network rules and help create regulatory compliant card programs for our Customers. When our Customers engage us solely as an Issuer Processor, more often internationally, we facilitate through Issuing Banks and Card Networks the authorization and settlement of our Customers’ card transactions. We intend to expand and deepen our relationships with Issuing Banks and Card Networks and expect to see an increased demand for both our program manager and issuer processor services.

Our Competitors

We compete in a large and evolving market. We believe that the principal competitive factors in our market include:

 

   

industry expertise;

 

   

platform and product features and functionality;

 

   

ability to build new technology and keep pace with innovation;

 

   

scalability;

 

   

extensibility;

 

   

product pricing;

 

   

security and reliability;

 

   

brand recognition and reputation;

 

   

agility; and

 

   

speed to market.

Our competitors fall into three primary categories:

 

   

Providers with legacy technology platforms, including Global Payments (TSYS), Fiserv (First Data), and FIS:

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

 

105


Table of Contents

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.

 

   

Vertical-focused providers, including Wex and Comdata:

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 ten-year track record of successful innovation. Emerging providers lack the years of card issuing experience and 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 have different go-to-market strategies and technological capabilities, rendering their solutions less attractive to businesses that need card issuing and transaction processing services.

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 – We participate in markets that are competitive and continuously evolving, and if we do not compete effectively with established companies and new market entrants, our business, results of operations, and financial condition could be adversely affected.”

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 disclosure 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.

As of December 31, 2020, we had three issued patents in the United States, which expire between 2033 and 2037, and four pending patent applications in the United States that 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 and patentability of 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

 

106


Table of Contents

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 partner closely to grow awareness and adoption of our Platform, accelerate Customer acquisition, and generate revenue. 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 marketing team collaborates with our business development and sales teams to create, influence and mature opportunities with a variety of initiatives, ranging from tailored content to high touch activities such as leading industry trade shows and events.

Our business development teams, incorporating sales and partnerships, 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.

We complement these marketing, business development, and sales activities with a focus on Customer experience and Customer success. We believe that highly responsive and effective support and education are an extension of our brand and are core to building and maintaining trust. We firmly believe in the importance of partnering with our Customers, and this is made possible by close cooperation between Customers and our Customer success and program management teams, enabling us to react quickly to Customer needs and fostering collaboration on future product innovation.

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. Software development is primarily executed by our team of professionals across design, product management, and engineering disciplines.

As of December 31, 2020, we had 260 employees in our research and development organization, defined as our Product & Technology organization. We intend to continue to invest in our research and development

 

107


Table of Contents

capabilities to extend our Platform. The technical operations team in our Product & Technology organization also works to ensure the successful deployment and monitoring of our Platform.

Government Regulation

We are subject to a number of U.S. federal and state 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 or other subjects. In addition to laws and regulations that apply to our business directly, we are contractually subject to certain laws and regulations through our relationships with Issuing Banks, Card Networks, our Customers, and our service providers. 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 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 grow and expand our geographical reach and our offerings, we may become subject to additional regulations, in the United States and internationally.

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, GDPR, and the CCPA. In some cases, we are subject to regulation as a result of our relationship with Issuing Banks or due to our Customers’ relationships with their cardholders, banks, or regulators. In providing our services, we collect, use, and otherwise process a wide variety of information to help ensure the integrity of our services and products and to provide features and functionality to our Customers. This aspect of our business, including the collection, use, processing, and protection of the information we acquire from our own services as well as from third-party sources, including our Customers and their cardholders, is subject to laws and regulations in the United States and elsewhere. Accordingly, we publish our privacy policies and terms of service, which describe our practices concerning the use, transmission and disclosure of certain information. As our business continues to expand, and as laws and regulations continue to be passed and their interpretations continue to evolve, additional laws and regulations relating to privacy, data protection, and information security may become relevant to us. For additional information about our approach to laws and regulations relating to privacy, data protection, and information security, please see “Risk Factors—Risks Relating to Our Business—Regulations and industry standards related to privacy and data protection could adversely affect our ability to effectively provide our services.”

Additionally, our Platform hosts, transmits, processes, and stores payment card data and is therefore required to comply with PCI DSS. As a result, we are subject to PCI audits and must comply with related security requirements. See the risk factor titled “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 Interchange 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 PCI DSS and other applicable data-security program requirements. To the extent that we

 

108


Table of Contents

provide certain services in connection with cards issued by our Issuing Banks, we are also subject to such requirements. To provide payment processing services, we are certified and registered with Visa and Mastercard as a processor for member institutions. We are also certified and registered with debit and transaction networks. As such, we are subject to applicable card association, Card Network and national scheme 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, depending on our role in the provision of our services, 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

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 Federal Reserve Board’s Regulation E, which impose requirements on general-use prepaid cards, store gift cards and electronic gift certificates. The Consumer Financial Protection Bureau, or the CFPB, has also issued a final rule on prepaid accounts. The definition of prepaid account under this rule includes 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. The requirements under this rule include, among other things, the disclosure of fees and other information to the consumer prior to the creation of a prepaid account; the extension of Regulation E liability limits and error-resolution requirements to all prepaid accounts; the application of Regulation Z credit card requirements to 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.

Anti-Money Laundering

Although we are not a “money services business” or otherwise subject to anti-money laundering registration requirements under U.S. federal or state law, we are subject to certain anti-money laundering 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 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 anti-money laundering 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 anti-money laundering purposes, we have implemented an anti-money laundering 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 anti-money laundering 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 anti-money laundering compliance program includes policies, procedures, reporting protocols and internal controls, including the designation of a bank secrecy act officer in the U.S. and the equivalent in other jurisdictions, and it is designed to assist in managing risk associated with money laundering and terrorist financing.

 

109


Table of Contents

Anti-Bribery Laws

We are subject to anti-corruption and anti-bribery and similar laws, such as 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 and other applicable anti-corruption and anti-bribery laws prohibit companies and their employees and agents from promising, authorizing, making, or offering improper payments or other benefits to government officials and others in the private sector to influence official action, direct business to any person, gain any improper advantage, or obtain or retain business.

The FCPA includes anti-bribery and accounting provisions enforced by the Department of Justice and 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.

Federal Trade Commission Act

All persons engaged in commerce, including, but not limited to, us and our Issuing Banks and our Customers are subject to Section 5 of the Federal Trade Commission Act prohibiting unfair or deceptive acts or practices, and certain products are subject to the jurisdiction of the CFPB regarding the prohibition of unfair, deceptive or abusive acts and practices, collectively UDAAP. A number of state laws and regulations also prohibit unfair and deceptive business practices. Various federal and state regulatory enforcement agencies including the Federal Trade Commission, or the FTC, CFPB and the state attorneys general have authority to investigate and take action against businesses, merchants and financial institutions that are alleged to engage in UDAAP or violate other laws, rules and regulations. While we are not directly subject to the purview of the CFPB, if our Issuing Banks are accused of violating such laws, rules, or regulations, we may be required to cooperate with investigations and assist our Issuing Banks in responding to inquiries.

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 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 UDAAP 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 certain 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 contract with Issuing Banks who are exempt from the Durbin Amendment, we remain sensitive to changes in the regulation of Interchange Fees. The

 

110


Table of Contents

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.

Escheat Regulations

We are generally exempt from escheat regulations, unless an Issuing Bank must comply and contractually obligates us to cooperate in the Issuing Bank’s compliance. As a result, our Issuing Banks are subject to unclaimed or abandoned property (escheat) laws in the United States. These state laws require banks to turn over to certain government authorities the property of others that such Issuing Banks hold that has been unclaimed for a specified period of time, such as payment instruments that have not been presented for payment and account balances that are due to a Customer following discontinuation of our relationship. We may be required to cooperate with such Issuing Banks in the course of their compliance. In connection with our relationships with Issuing Banks, we may be subject to audit by individual U.S. states with regard to our escheatment practices.

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, we may be subject to indirect supervision and examination by the Federal Deposit Insurance Corporation, state banks, 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 service. 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.

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 the data of our Customers. Our security program is aligned to the 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 data 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 best practices, 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

 

111


Table of Contents

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 the third-party vendors we use, including by 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 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, 2020, we had a total of 509 employees. 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 new employees. The principal purposes of our equity incentive plans are to attract, retain and reward personnel through the granting of share-based compensation awards and cash-based performance bonus awards in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.

Legal Proceedings

We are not currently a party to