Payfare Inc

TSX:PAY

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, ladies and gentlemen and welcome to Payfare's 2022 Q3 Financial Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded.

I will now turn the conference over to Mr. Cihan Tuncay, Head of Investor Relations and Corporate Development. Please go ahead.

[Cihan Tuncay, executive]

Thank you, operator, and good morning, everyone. Joining me on the call this morning is Marco Margiotta, Payfare's CEO and Founding Partner; and Charles Park, Payfare's CFO.

Payfare would like to note that our company's remarks and answers to your questions today may contain forward-looking statements that are based upon management's current expectations. All such statements are made pursuant to the safe harbor provisions of and are intended to be forward-looking statements under applicable Canadian securities legislation. When relying on forward-looking statements to make decisions with respect to the company, you should carefully consider the risks set forth in the Risk Factors section in the annual MD&A for the year ended December 31, 2021, which is available on www.sedar.com. Except as may be required by Canadian securities laws, the company does not undertake any obligation to update any forward-looking statements as a result of new information.

We would also like to remind listeners that Payfare uses certain non-GAAP and supplementary financial measures to arrive at adjusted results to assess its business and to measure overall performance. Payfare believes that these financial measures provide readers with a better understanding of how management views the company's overall performance. Throughout the call, we will also refer to a slide deck, which is posted on our website, corp.payfare.com/investors last night.

I will now turn the call over to Marco Margiotta.

[Marco Margiotta, executive]

Thanks, Cihan, and good morning, everyone. Let's start on Slide 3. The third quarter was a record for Payfare on all our operating and financial metrics. I would like to emphasize record levels of adjusted EBITDA, operating cash flow and free cash flow growth. We're proud to demonstrate that our core business is both profitable and self-financing. Importantly our team has achieved this without pulling back on growth or headcount reductions. Payfare remains in growth mode, and we have a clear line of slight ahead of us to say that we expect to be adjusted EBITDA positive on a full year basis in 2022. We're an asset-light business with minimal CapEx requirements and no debt, so our operating cash flow profile is also a good proxy for free cash flow.

We achieved these milestones because of our strong partnerships and integration with our key gig platform clients. Our ultra-low-cost distribution model, realizing significant processor cost improvements breaking to $2.1 billion of GDV [indiscernible] in third quarter, and our focus on delivering a high-quality user experience combined with a compelling suite of rewards for our cardholders to capture additional wallet share. I would like to take this opportunity to thank and congratulate our amazing staff on achieving these key milestones. We remain active on our previously announced Normal Course Issuer Bid program in the third quarter. To-date, we have re-purchased approximately 765,000 shares at an average price of $4.62 per share. We continue to believe our share price is significantly undervalued, and we will remain opportunistic on future share repurchases.

We're extremely well capitalized, and the buyback program has no impact on our ability to deploy capital strategically. We have seen little to no negative impact so far in our business from inflation or other macroeconomic headwinds. Our view is consistent with what our key gig platforms are recently disposed. Price increases are driving higher gig worker acquisitions across the industry as workers respond to inflation by supplementing the income of gig work, which is a net benefit for our user and GDV growth. In times like these, we believe the benefit of free instant pay is more important than ever.

Our partners implemented cash back rewards on fuel purchases through our cards have disclosed that the worker acquisition costs are at all-time lows and continue to stay low with successive quarters after partnering with Payfare to financially empower their workers with free instant payouts, free new bank account and robust loyalty rewards. In the last days of the quarter, we successfully launched an enhanced rewards program for U.S. Lyft drivers using a Lyft Direct debit card powered by Payfare of up to 8% cash back on fuel purchases. There is no expiration on the enhancement and early indications are that the program has been well received by our users.

Let's turn to Slide 4. The third quarter was another record for revenue in GDV, both up 183% and 176% year-over-year, respectively. Our revenue growth continues to outpace GDV and user growth, which demonstrates that Payfare is winning additional wallet share with our users.

Slide 5. Slide 5 highlights our user growth. Third quarter user growth was impacted by seasonality, particularly within our cohort of delivery users. This is relatively consistent with financial results reported by our Gig platform partners. Having said that, post quarter end, we are seeing a significant increase to net new users in both our rideshare and delivery cohorts. We look forward to celebrating our breakthrough of 1 million users in short order.

Turn to Slide 6. We are incredibly proud and humbled that Dasher Direct by Payfare was ranked the #1 finance app in the U.S. in the month of August by UnitQ. We believe this demonstrates the value that Payfare provides gig workers. We do not offer a generic product targeting every other bank consumer in the country. Our products are specifically designed with the needs of big work at the mind. We punched well above our weight compared to the size and budgets of other financial institutions on this list, and we'll continue to work on maintaining our position at the top of the table.

To Slide 7. Slide 7 demonstrated the value we provide for our worker -- our gig platform partners. Since launching Dasher Direct by Payfare early last year. DoorDash continues to achieve record lows in worker acquisition costs despite having spent over $40 million in a single quarter on cash back fuel purchases through our cards.

We have proven to the market that we significantly reduced worker acquisition costs for our partners through increased retention and higher engagement. Our partners realize these benefits and proactively engage with us on initiatives to double or triple penetration rates over the next 6 to 12 months.

Let's turn to Slide 8. As we mentioned in the prior quarter, there's a robust pipeline of new partnerships ahead of us, from late-stage discussions, RFPs and LOIs to implementing final agreements. The aggregate GDV of our pipeline is in the several billion-dollar range. While we have not been directly impacted by recent layouts in the tech sector, there has been an impact to prospective partners in our pipeline as RFP processes have been extended due to staff turnover.

We look forward to sharing updates on new contract wins in due course. As discussed in the previous slide, we believe there is a significant organic opportunity to increase penetration within our existing partnerships as well. One way to achieve this is by expanding our product shelves. We are working with our partners to expand financial inclusion and reduce reliance on predatory lending products for their workforces. To that end, we are developing best-in-class credit products to address the needs of our users.

Access to financial services do not affect our users' ability to work and provide their families -- provide for their families. At Payfare, we are taking an asset-light approach to credit by providing this origination platform. There is no shortage of debt capital in the marketplace to fund credit product or products targeting gig workers. We look forward to sharing more on our new product development early next year.

With that, I'll turn it over to Charles to review our Q3 financials.

[Charles Park, executive]

Thanks, Marco. Turning to Slide 9, you will see our summary income statement. In the third quarter, we generated revenue of $35.9 million, up 183% from Q3 2021. This increase was primarily driven by ongoing marketing initiatives and organic growth in each of our programs with DoorDash, Lyft and Uber. Our full year revenue guidance of $125 million to $135 million remains unchanged. Gross profit in the third quarter was a record $6.9 million at a 19.2% margin. Gross profit dollars were up 246% year-over-year and up 8% from the prior quarter. Our gross margin primarily benefited from volume-based pricing improvements with our higher active user base and GDV volumes.

As Marco mentioned, we are now adjusted EBITDA profitable. This is because as we grow our users and GDV, we continue to realize benefits in vendor pricing and scale, which will continue to drive margin expansion over the balance of the year. We expect to be adjusted EBITDA positive on a full year basis for 2022. There is significant operating leverage in our model as our platform can support materially higher users and GDV activity without a material change in headcount. I would also like to take a moment to speak about our operating and free cash flow. This was a record quarter on both metrics. Our operating cash flow of $3.9 million was up $4.9 million over the year and up $7.3 million from Q2 of this year. Our free cash flow was $3 million, up $5.3 million year-over-year and up $7.3 million quarter-over-quarter. Our core product is generating positive cash flow with minimal working capital and CapEx investment.

On Slide 10, we summarize our current financial condition. We ended the quarter with $40 million in cash. Our financial condition is strong. We have minimal capital needs to fund our organic growth opportunities as our core business is self-financing. Our balance sheet is well capitalized, and we remain debt-free.

I will now turn it over for Cihan for a capital markets update.

[Cihan Tuncay, executive]

Thank you, Charles. Let's flip to Slide 11. This is the familiar chart that compares to the share price performance to the ETFMG Prime Mobile Payments ETF since our IPO. We're happy to see that we have outperformed our benchmark by 25% over this period despite elevated market volatility same this year.

Slide 12 shows where our stock is trading relative to other high-growth payments companies. I want to point out that all figures on this table are in U.S. dollars and all forward-looking information reflects analyst consensus estimates in the midpoint of our revenue guidance for 2022. While we can't control market multiples, we have levers to pull to close the valuation gap with it.

The first lever is delivering on adjusted EBITDA and cash flow profitability, which we expect to achieve on a full year basis this year on both metrics. The second is expanding our gig platform partnerships. As Marco mentioned, we are excited about our current sales pipeline and the ability to execute on increasing penetration within our existing partnerships as well. The third lever we can pull on is new products. We're fast approaching the million-user threshold, which gives us the opportunity to develop new products, incremental user monetization, including credit. We look forward to delivering updates on these initiatives over the coming months.

And operator, with that, we are now ready to take questions from the queue.

[Operator]

[Operator Instructions] Our first question comes from Joseph Vafi with Canaccord.

[Joseph Vafi, analyst]

Great results, great execution. Maybe Marco will start with some of your comments. You said that you're working with your gig platform partners to double or triple penetration of Payfare in the driver base. Any detail there you can provide on some of those strategies to expand and penetrate in those partners? And then I have a follow-up.

[Marco Margiotta, executive]

Yes. Joe, thanks for the question. Yes, we have a number of initiatives that are ongoing in terms of looking at different ways we can get in front of that gig worker to make it appealing to them. One you've seen through cashback rewards, most prolific one was the gas discount we offered. There's a number of different initiatives to get in front of them again, but we know that even going back to the initial national launch, we know that within the first couple of weeks of seeing that exposure with that user. We onboarded about 20% to 30%, but we also know that about half of those users didn't open their e-mail. So naturally, if everyone got the exposure, we expect the numbers to go significantly higher from where we are.

Over and above that, like I said, all those different things we have in the pipe in terms of new ways to get in front of them, whether it's sweepstakes, cashback, rewards, deeper or more rewarded or targeted towards higher-tier drivers, as an example for users would be another initiative. And so there's a laundry list of things we have to kind of make sure that we get the exposure we're looking for.

[Joseph Vafi, analyst]

Got it. And then I know you mentioned some of the sales cycles were perhaps lengthening a bit here given some of the macro. Is that kind of broad based or do you still expect to have some of that pipeline convert here over the next few months?

[Marco Margiotta, executive]

I would say, as a general theme, everything status quo. There's just a couple of significant contracts that we were looking at were in turnovers directly impacted the launch or potential launch of any product that they were looking at. And so we feel good about that. It's just a delay as opposed to kind of an outright, kind of, when we'll take a pass at this point. I think it's clear today when you look at what DoorDash themselves have seen, a lot of gig worker platforms are looking for ways to drastically reduce these user acquisition costs from the workforce side.

And so as a theme, I think everything is in check. We still have a number of users in our pilot within the Paid App. That's what is expected. We want to make sure that measure twice or -- measure twice at once. It's a big undertaking. We're taking a normal implementation from months and blending it down to a few weeks until we kind of go live with that in a big way. We want to make sure everything is working as you'd expect.

And so as an overall thought about the macro backdrop, we don't see any slowdown. There's just 2 clients in particular -- our potential clients, in particular, that had some big turnover happen.

[Joseph Vafi, analyst]

Fair enough. And then maybe I'll just squeeze one more in on a more detailed update on Paid App, how those betas are going and what happens after those betas are -- does that mean that there's a bunch of potential new partner customers that can, kind of, ramp on Paid App quickly after the beta is over? Or how does that playbook unfold?

[Marco Margiotta, executive]

Yes. Thanks, Joe. So, I mean, once we're very comfortable with how everything is working in so far, so good. The reason why there's a bit more hesitancy unlike other rollouts, we have some new vendors that are taking part in the Paid App as well. So there's a bit more balance checks in place to make sure that all those third parties that are now entering the fold are doing what we expect them to do.

And so with that in mind, once the pilot is done, we are fortunate enough to have an inbound of opportunity that kind of was referred over to us from different parties in our network, including some of the network rails. And so with that in mind, we fully plan on rolling out a marketing channel or marketing distribution channel so that we can actually target more interest on the outbound. Obviously, that hasn't necessarily unfolded just yet. We've had the luxury of having enough pipeline to foster the start of a pilot.

And so now, we've hired a recent salesperson based out of the U.S. There's going to be to accommodate all the sales activity, and that should expect to grow and that team will grow over the next few quarters. And with that, we also envision bringing on a new marketing individuals to kind of quarter back all the marketing efforts to, kind of, build the sales pipeline even deeper than all the activity we're already seeing.

[Operator]

Our next question comes from Adhir Kadve with Eight Capital.

[Adhir Kadve, analyst]

I wanted to ask about the cohort of drivers, which you on-boarded via the cashback reward programs on fuel earlier in the year. Now that the program has kind of lapse, can you give us a sense of the retention numbers and how those users are kind of beating on the platform?

[Marco Margiotta, executive]

Charles, do you want to take that one?

[Charles Park, executive]

Sure, Marco. From a churn perspective, Adhir, as we kind of forecast, we have not seen material churn in that initial cohort that signed up during that 10% gas rebate program. In fact, as you can see from our results, our user base has grown. And if you compare it to Doordash's results, we're actually tracking at a higher percentage clip growth quarter-over-quarter. So we're confident that the benefits that the drivers have in terms of getting access to the earnings after each dash are quite formidable and provide great value. So it's kind of our thesis saying that once exposed, it's very difficult to kind of go back to the way it was in terms of going back to being paid weekly, if not longer. So positive news overall in terms of like retention of those drivers that were signed up during the program, and we look to kind of grow that base for the balance of the year.

[Adhir Kadve, analyst]

Got it. That's great to hear. And then I just also wanted to now ask about the Lyft enhance cashback. This program doesn't really have an expiration date. Do you guys kind of see this program as just kind of reengaging the Lyft Direct program? Obviously, it's been well documented how -- how involved DoorDash has been. But Lyft has been more modest relatively. So any comments around that?

[Marco Margiotta, executive]

Maybe Cihan, you want to take that one?

[Cihan Tuncay, executive]

Sorry, Adhir, I was cutting out there. Could you repeat the question, please?

[Adhir Kadve, analyst]

Yes, absolutely. So I wanted to just ask about the Lyft enhance cash back rewards. I was just kind of wondering, like is this program Lyft more kind of reengaging with the Lyft Direct program, just kind of relatively -- DoorDash had been very engaged with the program with their DasherDirect program. I just kind of want to see relatively -- do you see this as Lyft kind of reengaging and any comments surrounding that?

[Cihan Tuncay, executive]

Yes, absolutely. So with each one of our partners, as Marco mentioned earlier on the call, we have a demonstrated ability to reduce driver-worker acquisition costs and increase retention. And so, the more we stay in front of our existing partners as well as new partnerships, we're showing that benefit we realize, but in the case of Lyft, they're realizing that tangible benefit as well. And so, we're excited about the potential for that program to grow, the rideshare user base and activity levels. What we do know, and this comes through on all the gig platform earnings results that came through over the last couple of weeks.

Rideshare is still below pre-pandemic activity levels, but getting back and closer to and perhaps this quarter or next quarter, we'll break through -- the overall industry will break through where activity else were in 2019. What's encouraging for us is exactly, as you mentioned, Adhir, that's enhanced and ongoing and permanent program in place with Lyft to really reward the higher-tier drivers. And that's important for us because rideshare is actually a higher GDV per these sort of business or cohort and delivery. So it's exciting for us to -- I wouldn't say reengage, but enhance and boost and help drivers get back on the road and help our rideshare partners continue to break back through pre-pandemic levels.

One thing that they've also said is that they expect to increase spending on driver incentives for the fourth quarter and going forward, and we expect to realize the benefit from that as well. And as all that to say, we're really excited about the enhancement and the impact we expect to see on our rideshare cohort.

[Adhir Kadve, analyst]

Excellent. And then maybe one last one, maybe for you, Charles. Just, kind of, as we think about your margin profile moving forward, with the new -- with the Paid App going live, and I think Marco mentioned a little bit more in the deeper marketing channel. How do you see that kind of impacting -- or if at all impacting margins moving forward?

[Charles Park, executive]

Yes, I think as we kind of reiterated in prior quarters, our run rate gross margin that we're targeting by the end of the year is 25%. That's kind of excluding some of the new products that we hope to launch in the coming months. So really, it would be a margin enhancement, a positive addition to kind of that 25% margin that we're looking at, given if we have referral fees as an example, that are kind of added to our product profile, that would be a direct kind of hit to margin as well to the upside. So we definitely see that with some modest monetization of our existing base, there's a lot of potential in 2023 in particular, for us to grow that margin base and run rate basis.

[Operator]

Our next question comes from David Pierse with Raymond James.

[David Pierse, analyst]

Charles just to follow up on the gross margin question that sort of came in at 19% again this quarter, sort of flat to Q2. Just wondering, what's driving that 6-point expansion in Q4, assuming you're still planning to aim to 25%.

[Charles Park, executive]

Sure. Thank you, David, for the question. From a margin perspective for Q3, one thing to kind of keep in mind is there were some, I'll call it, cleanup or true-up adjustments that we had booked in Q3. So adjusting out for those adjustments, we were actually over 20% from a gross margin profile for Q3. So in terms of what was communicated in the prior quarter earnings call, it's that we were forecasting. How we get some low 20s to kind of 25% is really [indiscernible] user base with additional volume comes additional savings at that upper tiers of those volumes. So that's how we march towards that 25% by the end of the year.

[David Pierse, analyst]

And maybe just one quickly on the NCIB. Is trade liquidity something you guys are thinking about as you sort of pursue this buyback program or how are you taking that into account?

[Charles Park, executive]

Marco, do you want to maybe take the -- that question?

[Marco Margiotta, executive]

I heard something about the NCIB, but sorry, David, I didn't pick up the full question.

[David Pierse, analyst]

So just on trade liquidity, Marco, and the NCIB. Is that something you're factoring into repurchase decisions going forward?

[Marco Margiotta, executive]

Yes I mean the reality is we all know that liquidity on the TSX, especially for our stock in a small microcap company is challenging to say at least. And so the effectiveness of what we're after isn't really there with all the limitations around an NCIB, it kind of really restricts and limits the purchase activity. We're still feeling incredibly bullish about what we see ahead of us. We'll continue to kind of deploy that capital on an opportunistic basis, as we had mentioned.

What -- yes, I mean there's nothing really we see preventing us from continuing that program at these share price levels.

[Operator]

Our next question comes from Mike Rizvanovic with KBW.

[Mehmed Rizvanovic, analyst]

Couple of questions from me. First, I wanted to go back to that gross profit margin guidance. So getting to $25 million and some of the noise you had this quarter. So that trough-up that you mentioned, that 1% to 2% trough-up this quarter, is that something that can repeat next year? Is it just a onetime thing or is this something that could come back again at some point in 2023?

And then secondly, on the margin trajectory, when you mentioned new fees, new products, new services, ancillary revenue, the fact that you don't have any now, should we be thinking about that maybe being more of at the very earliest the back half of next year? I'm guessing you'd be introducing potentially some of the stuff in early 2023, maybe mid-2023. But where is the torque on that or the timing of the torque on that? Is that more of an end of year and early 2024 story? I'm just trying to get a sense of a better sort of understanding of how strong your margins could be beyond that 25% level assuming that you get there next quarter.

[Charles Park, executive]

Sure. Thanks, Mike. So to answer the first question in terms of the Q3 adjustment, it is onetime, so it should not be a recurring item that you kind of put into your model. So that's the first question. In terms of the second question, timing of the new products and initiatives that will enhance the margin profile, I won't say it's late 2023, but we're probably targeting late Q1 or early Q2 in terms of the time line to introduce some of those products into the marketplace.

[Mehmed Rizvanovic, analyst]

And then is there any sort of natural level that you can't get beyond -- let's assume you don't have margin-enhancing products at all next year. Is there like a ceiling on that margin? Is 25% a good way to look at as being sort of like a ceiling on your existing business as it stands today without the margin enhancements that you're mentioning?

[Charles Park, executive]

Sure. Maybe I'll answer it this way, Mike. Really, with additional volumes comes additional power to kind of negotiate with our vendors -- and we've done that this past year where as our volumes grew, we had more negotiating power. So the idea would be in 2023, assuming we continue on the current trajectory, that we will go back to the vendors to extract more savings that would then pull through into our margins as well. So, although nothing is kind of guaranteed, our strategy always is to leverage the volumes -- volume power that we have and go back to our vendors to extract more benefits.

[Mehmed Rizvanovic, analyst]

Okay. That's helpful. So it sounds like there is potentially some upside beyond the 25%. And then maybe just one quick one for me, one more quick one on the expenses, the SG&A. Marco, I think you had mentioned you had some comments there on marketing and ramping that up. Just trying to get a sense of, just given the fact that your marketing spend is actually down, I think, this quarter sequentially. What sort of ramp-up on the SG&A should we be thinking about for next year?

[Marco Margiotta, executive]

Thanks, Mike. Charles, I guess you could take that one. It's not a significant material impact, but the thought is we do have to expand out with the marketing funnel and then hire sales team to support it, but Charles would you be able provide some detail?

[Charles Park, executive]

Yes, sure. Thanks, Marco. So Mike, in terms of like 2023, we're currently in the process of finalizing our budget for 2023 to get board approved. So I won't go maybe too much into the specifics. But high level, what I would kind of comment on is that a lot of the marketing initiatives rather than it being kind of an ongoing thing, it's really targeted to specific rollouts and projects. So rather than kind of a peanut butter approach throughout the year, it may be more surrounded around initiatives like the gas rebate program that was launched in the summertime, works like more onetime shots and then assessing the success of the program and then looking to reinvest if we see the return on investment.

So in terms of advanced notice of those kind of initiatives, I think we're trying to do a better job on a go-forward basis as we work with our customers to kind of plan these things out so that we can communicate that, whether it's during the earnings calls or calls with analysts as well, so that there's a little bit of a heads up in terms of what the current spend is going to be -- our future spend. So I hope I kind of answered the question in an indirect way, but I would say it's more targeted marketing spend as opposed to spend throughout the year, is kind of our approach.

[Operator]

[Operator Instructions] Our next question comes from Matthew Howlett with B. Riley Securities.

[Matthew Howlett, analyst]

Just at a high level, could you just comment on -- the labor department change the gig worker classification. Just -- I know it's obviously [indiscernible] California, but can you just give us some high-level thoughts.

[Marco Margiotta, executive]

I could take that one. Thanks for the question. Yes, I mean, even with the proposed change, it really doesn't impact the way it's voted today wouldn't really impact the gig platforms we deal with today. Second to that, about Proposition 22 in the state of California, the most liberal state there is, there was a 58% approval rate to keep these workers classified as independent contractors. On many different fronts with the most important one being gig workers and more specifically, as the independent contractor they are dipping into their own pocket to kind of take that risk in order to make some income. That's a clear distinction between employer and employee -- or sorry, contractor versus an employee.

And so in many ways, we know that if that were to happen in a very, very unlikely event that would have happen, the reason why it's coming up now is because of the midterm elections, which kind of made it a button topic of choice. We don't think it will happen. But in the unlikely event it happens, we actually think net-net, we might be better off given the fact that the gig worker we used to have, $100 gross now might only have $70 net in their pocket, meaning they have even less cash to ride out the week -- the work week. And so we would see an influx of new users come to the platform and so to finding more cash to fund that gap that they normally face.

And so we're not overly concerned about it at this point, just given the history, given the classification and the challenges that would face for a lot of activity around the space. When you think about even someone or a company like Uber that came to market kind of pushing their way through and begging for forgiveness later. It really took a toll on the taxi industry. And so there's not many taxi industry players of size in many of the markets. And so now if those costs have to be pushed through, through those gig platforms, and there's no tax industry to fall back on. I don't think there's many people in many of the states that would want that in terms of their availability of using a taxi or Uber or any ride of your company for that matter.

They just creating an environment where now the taxi industry got wiped out and all of a sudden, the cost one thought you were saving or now putting back -- being put back on to the industry. So net-net, you're left with the ride, your company charging a lot more just for the classification of being an employees. But we give them the benefit and kind of avoid all the pitfalls of all the complications that would arise with it. I think net-net, you're good -- you're in a much better spot. I think that's the ultimate outcome. They'll get more benefits out of this.

[Matthew Howlett, analyst]

So bottom line, [indiscernible] a few attempts at doing this, but bottom line, I don't think it'll impact your major partners and I think if it does, clearly you could benefit from the changes.

[Marco Margiotta, executive]

Yes I mean, net-net, you'd have a reduction in GDV per user, but you also have a significant amount of more users. And so we think the significant amount more users would more than offset the reduction in that GDV per user.

[Matthew Howlett, analyst]

Makes complete sense, and I'm glad you addressed it just so is obviously top of mind here with the elections. Second thing is of all your sort of other products being rolled out, I want to ask about the lending product. I mean to me, that has the most upside in my view. Can you just a high level give us a sense on how it will be structured and obviously could have a partner and generate some type of referral or success fee? And any sense on what type of line we could be looking at here or is it just too early?

[Marco Margiotta, executive]

It's really early but what I would say is the things that we kept highlighting, which is we don't want to be the balance sheet here, we plan on taking an origination fee, possibly even a success fee, just to align interest. So there's different ways we could do it, but with certainty, I can tell you the balance sheet will not be residing on our balance sheet. We have a slew of different debt providers that are stepping up to kind of look at the opportunity. The things they love about it -- all the things that we keep highlighting it, is a quick turnover book, you have complete visibility of the worker. There's ways to kind of mitigate risk in terms of repayments because of the embeddedness of our product and our bank account.

The list goes on and on and on. This makes total sense. We think penetration rates would be significantly boost or boosted by this kind of product offering. We know it's well reviewed. We've had experiences here in Canada -- we opened up different valves back in the day, and we know that a credit cost product would be overwhelmingly demanded. I guess like every other credit product, the easy part is given the money out. But more important than that, we also feel that the collection risk and repayment risk would be mitigated significantly given the infrastructure and the ecosystem we fit in with that worker.

[Matthew Howlett, analyst]

Do you look at it like an acquisition channel and you have the fee side of that, but could also help penetration sort of 2 ways you win.

[Marco Margiotta, executive]

All those things. Yes, so it would be greater attraction and retention just because the availability of credit for someone who's got significantly damaged or no credit score at all, might be available, just given the driving history and their work history that we have complete visibility on. Second to that, because of the repayment risk, I am not rely on a third-party bank account, there's also a mitigation of risk there in terms of collections.

And so yes, that should boost and I know of course they should, I could speak with condition. I know it will dramatically increase penetration rates. We were the only game in town then to get credit. You're kind of making it even more attractive over and above and beyond what we think is almost a no-brainer with a free bank account already giving them infancies to credit.

So we see definitely attraction retention rates, it would be a significant lift. And then we'd also see the benefit of clipping that referral fee in any arrangement, not just on a credit product, but I'll make it to broad. And I'd just say we've always envisioned introducing a marketplace there's significant opportunity there. And going back to some of the questions around margins. I mean, those margins are almost at 100% because most of them rely on referral fee. And so out of 1 million active users these are things that we get excited about. These are always things we envisioned, but the focus was target of big Goliath clients. We had a complete greenfield in front of us. We nailed that, executed almost perfectly given the #1 ranking we had in the U.S. with one of our apps.

Now you expand the TAM by introducing the Paid App and stamping it out in a much quicker fashion that we do adjust the rest of the market that wants this product or not really want it, but need it at this point. And then it's about monetizing the user base. And so credit falls into that marketplace opportunity spectrum that we look to roll out in early 2023.

[Matthew Howlett, analyst]

It sounds like it could be a tremendous banking product with a big cohort of the under bank. Last question, look when I modeled the GDV versus active user growth, I mean, is it just going to be the mix shift is that Paid App outpacing could it continue? Just tell me there.

[Marco Margiotta, executive]

Yes, Cihan, may I throw that one over to you or Charles.

[Cihan Tuncay, executive]

Maybe I can kind of start and then Charles will jump in if you have anything. But with respect to overall growth and activity levels with users and GDV, now I think the important thing and one of the reasons why our GDV has outpaced our user growth is particularly because we've got those enhanced cashback loyalty reward programs that are in place that people use, right?

And so that's also led to revenue growing in a faster pit than both of those metrics as well. And so when we talked about the launch of the Lyft enhancement that came on right in the last few days of Q3. We expect that to have a positive impact and early indications are that, that enhancement has been very well received. And so we expect just on that relationship of GDV to user, we expect that relationship to be in tandem than what we've seen with prior quarters.

But we're really excited about the opportunity to help grow that duty even further, right? And so Marco talked about whether it's credit or what have you. These are the kind of things that also help us reengage with the existing platform users. And what I mean by that is we do see a difference and how it ties back to penetration levels, we do see a difference in penetration of new worker activations when they're presented with the decision point to sign up for Dash Direct, Payfare or Lyft Direct by Payfare, the conversion or penetration on that user is north of 50%. And what we're trying to do is reengaged or how -- we think about, along with our platforms, how do we reengage or get the message to that existing user base that's already there, but it's not faced with that immediate decision point.

And so one of the things like the enhancement to the Lyft program, one of the things is launching credit products, whatever form they may take. All of those combined, we expect to help tying back to your original question. All those things combined, we expect to help boost GDV levels as well.

[Operator]

There are no further questions at this time. Ladies and gentlemen, that concludes today's conference call. Thank you for participating, and we ask that you please disconnect your lines.