Dive Brief:

• Card issuing fintech Marqeta said Tuesday it secured a four-year extension of its contract with digital payments company Block, to power that company’s Cash App card.
• The renewed deal took effect July 1 and runs through June 2027, Oakland, California-based Marqeta said in a news release.
• The renewal does come with pricing changes, Marqeta executives noted during the company’s second-quarter earnings call with analysts. The company expects its gross profit take rate on Cash App volume to be about 40% lower as a result of the renewal, a spokesperson said. “It is a very, very fair deal for both parties and, honestly, it sets us up for the right amount of growth for the next four years,” Marqeta CEO Simon Khalaf told analysts.

Dive Insight:

Block is Marqeta’s biggest customer, and with the Cash App contract set to expire in March 2024, analysts covering the company had become increasingly concerned about the future of that contract. 

In the second quarter, 78% of Marqeta’s net revenue came from Block, compared to 69% in the second quarter of last year, according to Marqeta’s quarterly filing with the Securities and Exchange Commission. 

Although Marqeta’s “near-term operating performance will reflect the economics of the Cash App renewal, which were (predictably) much reduced from what they had been in the prior deal given Block’s strong bargaining position, the company will now be able to establish a new baseline from which to grow during the next few years,” Berenberg Capital Markets analyst Mark Palmer wrote in a Wednesday note to investor clients. 

Marqeta CFO Mike Milotich on Tuesday highlighted the importance of the Cash App business. The financial services vertical continues to be the card issuing fintech’s biggest contributor to growth, “growing several points faster than the company as a whole. This was fueled by Cash App’s continued growth in transacting active cardholders, and higher spend per active user,” he said Tuesday.

The renewal’s pricing is commensurate with market rates for a business of Cash App’s scale, and Marqeta aims to set up a pricing structure that’s beneficial for both parties, Milotich said. 

“As they continue to get bigger, it’s still accretive to us, but they grow a little faster than we do, so they accrue a little bit more of the upside as they get bigger, as they should, but we still get nice growth as well,” he told analysts.

Earlier this year, Marqeta renewed its contract for services provided to Block-owned buy now, pay later business Afterpay. The Marqeta spokesperson declined to share pricing details of that contract. The services Marqeta provides for Block’s merchant business Square are not due to be renewed until late 2024, and Marqeta “will be working on that as well,” Khalaf said.

Although the Cash App renewal impacts Marqeta’s financial results in the short term, “it's something we expected and proactively made decisions based on,” Khalaf said. “It also positions us well for the long term.”

The renewal is part of Marqeta’s year-long effort to establish sustainable growth, which also included expanding its product line through the January acquisition of Power Finance and reducing operating expenses, Khalaf said.

In May, Marqeta said it was cutting 15% of its workforce as part of a cost-cutting plan targeting profitability. Milotich said Tuesday the restructuring ended up shaving about 20% of the company’s workforce, which resulted in second-quarter savings of $6 million. Looking ahead, the company does plan to hire in “priority areas,” he noted, without specifying those areas.

Marqeta reported a second quarter loss of $58.8 million, according to the earnings news release. The company’s quarterly revenue jumped 24%, to $231.1 million.