Payrails banks $14.4M for its OS for complex payments flows

May 10, 2023

Enterprises and marketplaces that need to take and make payments across multiple geographies and products have typically relied on mix-and-match bags of third-party services patched together by teams of engineers with some of their own code.

But at best, these Dr. Frankenstein creations can be buggy and still missing functionality — and at worst, the complexity can hide malicious activity.

That was the disparity that led three payments engineers to found Payrails, a startup that has developed a framework to build and operate more stable enterprise payment services. Today, it's announcing funding of $14.4 million after seeing some solid traction around its platform.

EQT Ventures is leading the investment, with General Catalyst, Andreessen Horowitz and HV Capital also participating. The funding is being described as a "seed extension": a16z led the original seed round of $6.4 million (with HV Capital also backing), which we covered last year, when Payrails first emerged from stealth.

The startup is not disclosing valuation, but CEO Orkhan Abdullayev confirmed it was at a higher valuation than last year. As another data point, in the current market, $20.8 million is a very healthy seed round.

The challenges enterprises face in building payments flows for themselves can't be overstated: I’m writing this article while in Amsterdam at Money 20/20, the fintech conference, and in just one day I’ve lost count of how many times I’ve heard payments execs lament the issues they have when conceiving of, building and then running payments services for existing products — let alone the services they would need to concoct for the products they have yet to launch.

Image Credits: Payrails (opens in a new window) under a license.

Even the three founders of Payrails, Abdullayev (above, center), Emre Talay (left) and Nicolas Thouzeau (right), are not immune to this.

When they previously worked together at online food ordering behemoth Delivery Hero, they built and ran a big payments operation that is still being used — the one that eventually gave them the idea of trying to solve the issue for more companies. But even that system has flaws, as you can see by one truly frustrated, detailed comment from an engineer that still works at DH, placed at the bottom of the Payrails launch story we published last year.

Payrails is their attempt to tackle the problem using a clean slate, separate from any real-time pressures at a specific business.

Designed as a kind of "operating system" for payments — or a "SAP for payments," as Payrails says, to really drive the idea of its composability — the idea is to offer customers a range of services in three distinct categories: Payments (covering smart payment routing, auto retries on failed payments, customizable check-out); Ledgers (related to how funds are split or merged); and Automations (for reconciliations, running simulations on services, anomaly detection and analytics).

It's not the only company attempting to improve and simplify this process. Payoneer, Adyen, Fabrick and others also provide services to enterprises to build solutions that fit their particular needs. And again, typically companies work with multiple providers because of the varying needs across geographies.

Abdullayev would not disclose names of customers nor any metrics on its growth — pointing to the inbound interest in funding as a measure of progress — but he did say that the last year has changed not just his customer's priorities, but those of Payrails, too.

"Given our focus on larger enterprise customers, the sales cycles have become longer," he said, adding that "the priority for many companies shifted from ‘I want to launch in 10 more markets’ to efficiency… How do we reduce our payment costs and automate processes around payouts, reconciliation, money movement?" Those were all areas where Payrails had already built some functionality, he added, one reason why it's doing well now.

Kaushik Subramanian, the partner at EQT Ventures who led the investment for the firm, should be an interesting partner for Payrails: his previous role was head of product at Stripe, and so he will have recent, close experience of the challenges of working with enterprises and marketplaces, and building payments services for them that hide huge amounts of complexity.

"Enterprise customers require a high quality, reliable payments product that can manage complex money flows, increasingly in a multiprocessor environment," he said in a statement. "To build a scalable product for this is akin to building the SAP of payments. This requires both depth and experience in building similar products, and this is why the Payrails team is ideally positioned to tackle this challenge and the positive feedback from their live customers is a testament to this. We are passionate about payments and teams that are building generation-defining solutions. Payrails addresses one of the major challenges in payments, and we look forward to being part of Payrails’ journey."