Three of my favorite fintechs – fintech A-Listers – grabbed headlines this past Tuesday. Marqeta (NASDAQ: MQ) announced a new partnership with privately held Plaid to facilitate easier ACH transfers between its corporate client’s end-users (employees and Gig-workers) and their respective external bank accounts. And in investment news, Warren Buffet-run Berkshire Hathaway revealed in its fourth-quarter 13 F that it purchased an additional $1B in Class A common of Brazilian digital banking giant NuBank (NYSE: NU) – Berkshire made a pre-IPO investment of $500M in July of 2021.
I’ve written about NuBank, Plaid, and Marqeta before, in fact I’ve written about each within the past 12 months. And I’ve done so for good reasons, which, in addition to a handful of other fintechs, support my characterization of this grouping as fintech A-Listers.
Plaid and Marqeta have earned their special, A-List status based purely on their disruptive technologies. Plaid for re-imagining the way personal financial data is securely shared between consumers and financial institutions, and Marqeta, for disrupting the card issuing space by obviating issuing banks for funding and underwriting, and legacy switching technologies still in use.
In the case of NuBank, the A-List designation has much less to do with the technology in-and-of-itself, but rather, it’s the aggregate product of a strong alignment between its technology, its end market, and its execution. NuBank’s digital banking technology isn’t disruptive per se – its differentiation from other digital banks is marginal – but its business thesis, leveraging mobile devices to bring basic banking and financial services to a massive demographic of underbanked in LATAM, has already been proven. Further, its management’s execution has been exceptional.
Deeper into the news…
NuBank – Berkshire Hathaway increasing its stake in NuBank comes as no surprise, as it previously backed the Brazilian fintech before it went public. It’s been reported that on the IPO itself, Berkshire realized a profit in the neighborhood of $150 million on its original investment. It’s also not surprising that Berkshire is backing Brazilian fintechs in general. Back in October of 2018, Berkshire Hathaway announced it would be investing in Brazilian payments processor and microlender StoneCo (NASDAQ: STNE). But what is newsworthy, and perhaps a bit surprising, is the size of the stake Berkshire has acquired. Purchasing 107,118,784 shares of common brings Berkshire’s beneficial interest to roughly 3% of the float. Given Buffet’s – at least by today’s standards – historically conservative investment approach, my take on Berkshire’s substantial position is that it represents a high-conviction buy, and an acknowledgement that NuBank is an A-Lister to Warren Buffet too.
Plaid & Marqeta – The new partnership struck between Plaid and Marqeta ought to serve Marqeta customers well. It should be particularly beneficial to those Marqeta customers whose needs extend beyond virtualized expense management products and require a better way to connect their corporate accounts to the external personal accounts of employees, independent contractors, and Gig-economy workers. The new partnership leverages the two companies’ core competencies to eliminate an undeniable pain-point for Marqeta customers, whose developers, up until now, had no efficient way to connect end-user’s company accounts with their personal bank accounts, for ACH credits, and other permissioned fintech applications that end-users might need. The clearest example of this comes in the use-case of Gig-workers (end-users) needing to move company payments from their virtual card/virtual account to their personal checking. By integrating with Plaid’s data aggregation and authentication technology, Marqeta’s customer’s (the companies) can eliminate the time-consuming process of account verification through micro-deposits, which can often take days to complete. The Marqeta partnership with Plaid substantially enhances the payment experience for end-users, allowing them to spend money more quickly because they can access it more quickly.
Investment banking takes…
There’s been a lot of new equity floats in the past two years. In my opinion too many. And many of these new issues have been marketed, correctly or incorrectly, under the banner of fintech.
For many of the fintech equities, current market volatility has blown away the bloom of sky-high valuations – leaving them exposed to greater business scrutiny, and challenged to catch a bid.
The problem?
Poor fundamentals, non-transformative technology, or simply having been brought to market prematurely by management and investment bankers with a solid business thesis and strategy for execution.
In Plaid’s case, it re-invented the way personal financial information is securely shared. The power and potential of its tech was recognized early by VISA who was shrewd enough to attempt to acquire them – the transaction having ultimately been scuttled by the DOJ, ostensibly due to anti-competitive and anti-monopolistic reasons. But make no mistake, its technology is game changing, and Plaid continues to gain purchase as a sine qua non of open banking architecture. Aside from Stripe, Plaid could be one of the most valuable private fintechs out there.
Marqeta’s technology is no less game changing, in that it has re-invented the mechanics of card issuing. Doing so by removing issuing banks from the value chain, allowing corporations to run their expense management programs internally, with maximum control and customization, and direct, corporate account-to-end-user account funding. Marqeta has also built its own switching technology, constituting a top-to-bottom, vertically integrated platform. Though I can’t deny that Marqeta has taken a beating in the public markets, I’d argue that that has more to do with the markets not properly understanding what Marqeta is, or has built, than any fault of its fundamentals and business thesis.
And NuBank is simply the poster child for a fintech with a solid business thesis and supremely, competent execution, from product to end-user to TAM.
…A-Listers indeed.
Software and Fintech Investment Bank – Marqeta & NuBank
