Railsr, the UK-based fintech once valued at nearly $1B, enters bankruptcy protection under new consortium owner

Startups are facing a moment of reckoning in today’s economic climate, and today one of the more promising in the fintech world has cracked under the pressure. Railsr, the London, UK embedded finance startup formerly known as Railsbank and once valued at nearly $1 billion, today announced that it has been acquired by a consortium of shareholders; and as part of the deal, it is going into administration so it can continue as a going concern as it restructures.

The consortium, which trades under the name Embedded Finance Ltd, includes former Railsrs investors D Squared Capital, Moneta VC and Venture Capital. The company does not disclose the value of the deal. It was valued, while still solvent, at around $250 million back in October 2022, so that’s one starting point.

This sale and bankruptcy state ends a difficult period of uncertainty at Railsr. Previously, sources told TechCrunch that Railsr was in talks to be acquired by Flutterwave, the pan-African finance company that was valued at more than $3 billion in a fundraising last year, though a deal never materialized.

It should be noted that Flutterwave has been involved in its own controversies, but from what we understand it was looking to buy Railsr to break into Europe, which has a strong financial corridor with Africa due to large immigrant populations from the latter region living in former region.

Railsr was an early mover in the world of so-called embedded finance — fintechs that build and run APIs for banking, payment cards and credit products, which in turn are used by other fintechs (like neobanks) as well as other brands and businesses that also want to offer financial services to their customers to increase loyalty, expand revenue streams and more. There are around 5 million people using these services currently.

In all, Railsr has raised more than $185 million, and it was once valued at close to $1 billion. But rumors have swirled for months that the company was in trouble and looking for a buyer. Sky News reported that a round the company raised in October 2022 (a Series C of $26 million plus $22 million in debt) was done as a significant down round, valuing the company at around $250 million. (Note: Pitchbook’s figure is slightly higher at $278 million.)

It’s a remarkable fall for a startup that once had very big ambitions, and it raises a lot of questions about what Railsr’s fate might mean. Is the fall due to the start-up’s own strategy, or execution? Or is it a signal that more woes are to come for other players in embedded finance? More broadly, a broader range of fintech startups that may not be profitable, are nearing the end of their runways, and are finding it difficult to raise more money may be coming to terms with their own next steps, and the result may be not quite.

Rick Haythornthwaite, who had been chairman before the sale, will continue in the role, the company said.

“We are very pleased that Railsr is now able to rebuild momentum and return to growth,” he said in a statement today. “It is a business that deserved to be recapitalised. Railsr has a best-in-class technology platform that has already given hundreds of fintech clients a competitive edge. A large number of people across the financial ecosystem believe in Railr’s potential and have worked very hard to make this transaction a reality. We will now return to the basics and manage the business methodically and constructively. We have secured a new chapter for Railsr and are excited about what the future holds.”

In fact, investors remain bullish on the potential of embedded finance as a business, which is why they’ve banded together to take on Railsr and give it another shot.

“Embedded Finance has the potential to spur innovation, shape business models and transform consumer experiences,” Dan Adler, CEO of D Squared Capital, said in a statement. “Railsr has the opportunity to maintain its position as a market leader in Europe and capture the ever-growing market opportunity for embedded finance. We are excited to play a role in this pivotal moment for the company and its customers.”

“Railsr’s customers, technology and people have always impressed me, and that’s why I’ve never stopped believing in Railsr,” added Meirav Har Noy, co-founder and managing partner of Moneta VC. ” It is truly a global pioneer in embedded finance, operating at the heart of London’s innovative fintech scene. We know we have to work extremely hard to support our customers and navigate a rapidly changing regulatory environment, but it’s an exciting time to ensure the business remains world-leading, in a market valued in the trillions. I look forward to seizing the opportunities that lie ahead of us.”

“Aside from macroeconomic challenges, this action means we have stabilized Railsr which runs the systemic backbone infrastructure underpinning the UK financial system,” said Mo El Husseiny, founder of Ventura Capital. “This is great news for customers and for the millions of end-connected users sitting on top of the Railsr platform. Embedded finance is the future, and the potential is huge. We are entering this future together with our trusted partners.”

The company added that while it is in administration, no services are being interrupted and that two other operations connected to Railsr, Payrnet Limited in the UK and UAB Payrnet in Lithuania, are not in administration and will continue to trade as before.