Railsr, fintech formerly known as Railsbank, raises $46M • TechCrunch

Embedded banking has been growing in recent years as companies turned to APIs to embed financial services such as credit, payments and deposits to increase their revenue. Now, with the technology funding landscape in significant turmoil, one company in the embedded finance market has launched a growth round that underscores the pressures being felt in the particular area of ​​fintech.

Railsr, the London startup that changed its name from Railsbank earlier this year, has raised $46 million, a Series C that comes in the form of $26 million in equity and $20 million in debt. The equity portion is an insider round, meaning all repeat investors, with Anthos Capital leading and Ventura, Outrun Ventures, CreditEase and Moneta also participating. Mars Capital provided the debt, which CEO and co-founder Nigel Verdon said will be used for the same purpose as the equity, but come in at a lower cost. “Equity is expensive at the moment,” he said.

The company does not disclose its exact valuation: Verdon called it “real value” for the current market, indirectly confirming that it was a downgrade compared to the Series B a year ago, when it raised $70 million (also led by Anthos), and Verdon said the valuation was approaching $1 billion, describing it as “close to a unicorn.”

“It’s definitely not last year’s valuation,” he said of today’s Series C. “Prices have come down dramatically.”

The company is not yet profitable, Verdon noted in a statement today, describing this round as a “significant step on the road to profitability.”

The state of the market, it seems, is not far from the state of Railsr itself. The home currency, the pound, has weakened against the dollar, and many believe that the world is headed for a major recession. Buying activity is slowing at the macro level, even as there are still opportunities to serve clients even in a more bearish climate.

It plays out for Railsr in both positive and more negative ways.

Verdon said Railsr has been through a round of layoffs, reducing its workforce earlier this year by about 14%, or 70 people. It has also scaled back its operations in Southeast Asia and Australia, where it now has a “skeleton crew” and instead focuses on operations in the UK and Europe. “The medical book focuses on our strengths,” he said.

On the other hand, the company has appointed a new chairman, Rick Haythornthwaite, former chairman of Mastercard, and revenue grew 50% in the first half, with growth, albeit less, forecast for H2, figures Verdon said were below previous estimates but going still in the right direction.

Their customer numbers are currently 300, compared to 220 a year ago, who use APIs from Railsr to operate credit, credit cards, loyalty and more classic banking services.

Verticals it targets include retail, venue, sports and events companies; as well as other fintechs. It may seem strange that a fintech may not build its own fintech services, but typically this is because the company may be more focused on other areas such as insurance or payroll and use embedded financial services to quickly expand into adjacent areas that are not their core . competence. In the case of more direct banking providers, such as neobanks, the focus of the business may be around personalization and customer service. Banking thus becomes a basic (almost commodity-based) product that is easier and faster to integrate with an API instead of building from scratch.

Railsr cites Wagestream, Aviva and racing car brand McLaren (via QtmPay) among the case studies on the site, and also notes that HelloCash, Sodexo and Payine are clients. Partners offering services and integrations include AWS, Salesforce, Visa, MasterCard and Plaid.

Embedded finance has typically been one of the more bullish areas of the financial services market, so much so that even current research that factors in the state of the market appears to be positive for growth. Railsr quotes data from Bain & Company from earlier this month that embedded finance drove about $2.6 trillion in financial transactions in the United States in 2021, and that this number is expected to continue growing, to pass $7 trillion by 2026.

There’s a reason existing investors are willing to back Railsr again.

“It has been a pleasure to see Railsr go from strength to strength as a challenger to legacy finance and a creator of the embedded financial economy,” said Meirav Harnoy, co-founder and managing partner of Moneta VC. “Railsr’s customers, technology and people have impressed me since I led the Series A investment round. I’m excited to see what comes next.”