Empowering Complex Payments: Payrails Secures $14.4M for its Advanced Operating System

 

Enterprises and marketplaces operating across multiple geographies and products have long relied on a hodgepodge of third-party services cobbled together by teams of engineers. These makeshift solutions, akin to Dr. Frankenstein's creations, often suffer from bugs and missing functionality. At worst, their complexity can even conceal malicious activities.

Recognizing this disparity, three payments engineers came together to establish Payrails, a startup that has developed a framework for building and operating stable enterprise payment services. Today, the company announces a funding round of $14.4 million, driven by leading investor EQT Ventures, along with participation from General Catalyst, Andreessen Horowitz, and HV Capital. This "seed extension" follows the original seed round of $6.4 million, led by A16Z and HV Capital, which we covered last year when Payrails emerged from stealth mode.

Although the startup does not disclose its valuation, CEO Orkhan Abdullayev confirms that it has increased since last year. Notably, $20.8 million represents a substantial seed round in the current market.

The challenges faced by enterprises in building payment systems for themselves cannot be overstated. Attending the Money 20/20 fintech conference in Amsterdam, where payment executives lament the difficulties they encounter in conceiving, building, and managing payment services for existing products, I have lost count of how many times this issue has been raised. The task becomes even more complex when considering the services required for yet-to-be-launched products.

Even the founders of Payrails, including Abdullayev, Emre Talay, and Nicolas Thouzeau, have not been immune to these challenges. Previously, while working together at Delivery Hero, a major online food ordering company, they developed and managed a large-scale payments operation that is still in use today. It was this experience that inspired them to address the problem for a broader range of companies. However, even their previous system had flaws, as evidenced by a frustrated comment from one of Delivery Hero's engineers, which appeared at the bottom of our article on Payrails' launch last year.

Payrails represents their fresh approach to tackling these issues, unencumbered by the real-time pressures of a specific business. It is designed as an "operating system" for payments, often described as the "SAP for payments," emphasizing the idea of composability. The platform offers customers services across three distinct categories: Payments (encompassing smart payment routing, auto-retries on failed payments, and customizable check-out), Ledgers (related to fund splitting and merging), and Automations (covering reconciliations, simulations, anomaly detection, and analytics).

Abdullayev refrains from disclosing customer names or specific metrics at this stage. However, he acknowledges that the past year has transformed not only the priorities of their customers but also those of Payrails itself. "Given our focus on larger enterprise customers, the sales cycles have become longer," he states. He adds that many companies have shifted their focus from expanding into new markets to prioritizing efficiency. They now seek ways to reduce payment costs and automate processes related to payouts, reconciliation, and money movement. Payrails had already developed some functionality in these areas, contributing to its current success.

Kaushik Subramanian, the partner at EQT Ventures who led the investment, will be an interesting partner for Payrails. His previous role as head of product at Stripe gives him recent and intimate experience with the challenges of working with enterprises and marketplaces, and building payments services that navigate significant complexity.

"Enterprise customers require a high-quality, reliable payments product that can manage complex money flows, increasingly in a multiprocessor environment," Subramanian remarks. He believes that building a scalable product to address this challenge is akin to creating the SAP of