The flood of new loyalty and payment startups that littered much of last summer’s hyperlocal industry news cycle seems to have dried up, with only a handful of companies — namely, Square, Belly, FiveStars and LevelUp — making it to a meaningful second or third round of funding.
Add Marqeta to that list as well, however. The maker of a branded and white-labeled prepaid loyalty network announced that it closed a $14 million series A round led by Greylock Partners this morning, and revealed that its technology underpins the Facebook Card — the social network’s most recent stab at gifting.
The company has built a loyalty program that allows consumers to prepay for credit at participating merchants for a small discount (maybe $10 extra for $100 in credit), and pay for items at those stores using a branded, co-branded, or white-labeled plastic card. Marqeta works with Discover’s payment processing network to settle transactions in the same way that a Macy’s might issue its own branded credit card with Visa as its back end.
Consumers can manage their account and find participating locations through a mobile application, but that’s about the extent of mobile’s role. The company’s core technology rests on a cloud-based piece of software that can identify, authorize, settle payments in real-time, and do so for multiple locations in a secure and scalable manner.
“Payments is an incredibly complex ecosystem. It’s heavily regulated at the state level and there’s a list of extremely sensitive privacy concerns,” says the company’s founder, Jason Gardner, who sold his last startup, another payments company, to MoneyGram International in 2007. “When you swipe a card we know who you are where you are, how much money you have on that specific account. And how to authorization in less than a second. It’s the tech thats hard to manage.”
From a business development perspective, the payments model suffers from the same chicken-and-egg problem that faces most two-sided networks: you need merchants on the network to convince consumers to join, and consumers to motivate merchants. That’s where co-branded and white-label deals do a lot to help tip the balance for young startups. Partnerships with large stores can give startups a great way to scale the merchant side, but even more importantly, open access to the brand’s marketing dollars and reach to engage consumers. Marqeta has already hooked up with Jamba Juice to manage gifting and loyalty features, and Gardner says the startup has others in the pipeline.
The partnership with Facebook however, is unique. For companies that sell products directly, the concept of a loyalty program is nothing new. But the idea that a company, which generates revenue through advertising, could launch a loyalty card is something much more novel. In the media industry, there’s been a lot of talk about the intersection of content and commerce, though publishers and audience owners have struggled to make the transition. The white-label offers-space, for instance, struggled to live up to expectations, with Group Commerce selling for parts to their competitors within a year of raising a mountain of cash.
However, it’s not too hard to imagine that a publisher like Thrillist — with its history in e-commerce — might find success in launching a branded loyalty card with a select group of merchants. The company could use the card as an added service for existing advertisers, and a way to position itself within the local commerce The bottom line is that payments is at the early stages of a dramatic shift. The siloed payment stack that has dominated is giving way to a more interconnect and omnipresent type of payment ecosystem that’s more aligned with the web. And the way in which payments is applied will evolve.
“What you see going on in payments is similar to the early days of the internet with a lot of companies popping up, figuring out efficiencies, or building technologies that fit that system,” he explained. “If you think about where we are today [with the web], with the companies and efficiencies that have been built; if you mirror that with payments, it creates an interesting way to look at how the payments ecosystem might evolve and interconnect over time.”
Steven Jacobs is deputy editor at Street Fight