"We're used to black swan events in technology": An interview with Marqeta’s CEO Simon Khalaf
AltFi caught up with the new chief executive officer of one the largest listed fintech companies in the world.
At its peak, shortly after an Initial Public Offering (IPO) nearly two years ago, Marqeta hit a market cap of $15bn.
Since then, like many fintech companies and especially those in the public markets valuations have been hit hard. Today, Marqeta is ‘worth’, according to investors $2.1bn, an 86 per cent valuation haircut.
It is both a challenge and an opportunity for its new CEO who took over the reins at the start of the year in January from its founder Jason Gardner who moved to the role of executive chairman after 13 years at the helm.
“In a company our size, you always have to balance the day and the decade,” Khalaf tells me in a video call.
“You have your eye on the decade, but you also can forget what's happening on a day-to-day basis,” he said.
We’re speaking just a week after the collapse of Silicon Valley Bank left those in the wider tech community more than a little spooked.
Khalaf, who was formerly Marqeta’s chief product officer, is unfazed by the unfolding banking crisis.
“We're used to black swan events in technology. This is not the first and it's not going to be the last,“ he said.
“I've been in tech and leading companies for about 30 years, I've seen quite a few of these. And honestly, this one is not that unexpected. When you see the financial policies for either increasing liquidity or tightening the supply that fast,” he added.
Khalaf sees the ongoing turbulence in markets as largely emanating from the unwinding of an unprecedented era of loose central bank policy, one that also acted neatly as bookends for the launch of Marqeta in 2010 and his taking up the post as its new leader.
“We went from about 12 years of tremendous liquidity, and now 180 degrees, you're tightening monetary policy, increasing interest rate, something will break. That's something that appears to be not what governments expected,” he said.
“They expected the consumer balance sheet was going to break first, and there is going to be a credit crunch among consumers because of inflation, and because of increasing interest rates, and the debt stack of consumers that went up,” he adds.
While consumers have been hit hard by inflation and a very rapid series of rate rises in the UK and the US and elsewhere, it is the banking system that has creaked hardest with the SVB collapse and wider turmoil for Credit Suisse and others.
“It turns out that the weakest point was not the consumer, the weakest point is some financial institutions that have made long-term bets on long-term bonds - in order to increase their profits - but then their deposits went down,” Khalaf said.
“That's actually not a hard problem to solve because the assets aren't actually liquid, they actually went slightly down in price, unlike the 2008 crisis in which the assets evaporated,” he added.
Khalaf says, however, he is being “careful” and is still looking “deeper” at what is going on but says it just looks for now to be bad, short-term decisions made by a few banks.
“The world is connected, and we're all as weak as our weakest link. I'm not that panicked from a financial system perspective. The main reason is the asset class that everybody is worried about is not depleted, unlike 2008,” he said.
“Every time there is there's a shake-up in the system, trust is lost. It will need time to build trust, especially in smaller financial institutions, so it will create a flight to quality. Depositors are gonna go to places where their money is safe,” he added.
For Marqeta, Khalaf says, the same flight to quality may be a boon for the business.
“Marqeta is very well capitalised and is operating at scale. It has established relationships with many banks. We have seen a lot more inbound in the last two to three weeks. How long will this last? I don't know. But the bottom line is people do not want to take more risks. We are a safer bet than other choices,” he added.
Future of fintech
Our conversation turns to the future of fintech and how innovation in financial services has been decoupled permanently away from the largest institutions and banks in much the same way biotech did to pharmaceuticals and healthcare.
But how only a small few such as the maker of the MRNA vaccine platform Moderna (Khalaf’s cousin is on the board of the company), have truly disrupted the market.
”You're seeing the same thing in fintech,” he said.
“When fintech started, the main effort of fintech was to unbundle the banking services. Looking at certain financial services products, and then doing the technology and really, really well but not going broad.”
“If you look at banking services, ranging from deposits to treasury to investment banking, to lending to mortgages, secured, unsecured, and so on and so forth. fintech took one thing and do it really, really well,” he said.
Marqeta, which started with card issuing has expanded its product offering gradually over the years - as well as acquiring Power Finance at the start of 2023 - but ‘embedded finance’ is its biggest focus.
“What is interesting in fintech is that the direction is not to be absorbed by the incumbents or become big and take over from the incumbents. It is absorbed into everything you do on a day-to-day basis? So that's why we call it embedded finance.”
“We're seeing the trend that a lot of the services and products that fintech has built is going to be embedded into non-financial services companies.”
In fact, he adds, there are going to be so many places where fintech or financial services are going to be embedded they're going to disappear altogether.