GoCardless, the Y Combinator-backed payments startup based in the U.K., has raised a $3.3 million Series A round of funding, led by existing investors Accel Partners and Passion Capital. The company had previously raised $1,5 million in seed funding in early 2012, following its participation in the Y Combinator Summer 2011 class.
Founded in 2010 by Oxford graduates Hiroki Takeuchi, Tom Blomfield and Matt Robinson, the service helps businesses of all sizes establish automatic bill pay, direct debits, and recurring payments. As the startup’s name implies, the system is meant for use by merchants who can’t or don’t want to take credit card payments.
“Stripe makes it really easy for developers to get card payments, and Square makes it really easy for small merchants to take card payments,” explains Robinson. “But what do you do if card payments just don’t work for you? That’s the hole we fill.”
He also notes that card payments can sometimes have double-digit failure rates, and for those companies running a SaaS (software-as-a-service) business, these failures can kill them. With GoCardless, however, failure rates are really low because, unlike credit cards, users’ bank account details don’t change that often.
The system, for those unfamiliar, takes advantage of interbank transfers. Stateside, we refer to these as “Automated Clearing House” or ACH payments. Though you might not be familiar with the terminology, if you’ve ever switched on Automatic Bill Pay with your bank to pay a utility vendor, for example, then you’ve used ACH before. While other startups like Dwolla have since come along to blow up the entire ACH network by building its own real-time alternative, ACH payments are still a standard that businesses are comfortable with today.
The problem, however, was that for smaller merchants, the process of setting up automatic and/or recurring payments has been complicated and costly in the past. GoCardless changes that by making its fee structure more affordable – there are no setup or monthly fees, and then just 1 percent (up to £2) in transaction fees.
Robinson says that there are now more than 5,000 merchants using the system – up from 2,000 in May of last year. And that’s despite the fact that the startup hasn’t yet had the resources to expand outside the U.K. to the rest of Europe, as previously promised. That’s one of the immediate goals, following the Series A funding, we’re told.
The other is to implement a better referrals system where today there is none. Most of GoCardless’ business has come in through word-of-mouth, Robinson notes, and now the company wants to help encourage even more sign-ups and thank users who send them business by offering some sort of reward – like a certain amount of free payments, for instance. (Details on this have not yet been ironed out.)
The other key focus is, of course, product. Robinson says the startup is now adding “functionality to the product to allow people to have more flexibility in the way they do payments.” But he wants to keep the specifics close to the vest for the time being on what that means.
Since its public launch, GoCardless has been steadily growing at 40 percent month-over-month. It now has a team of 23 and is basically “always hiring” good developers. Its 5,000 merchants have reached a combined customer base in the tens of thousands – more than 50,000 people have paid with GoCardless, Robinson reports.
The service is also popular in a range of industries, too, including online businesses, wholesalers, accountants, web hosts, membership-based services, and more. In more recent months, the company has been working to expand its reach through an API, which is now integrated into a number of existing accounting software programs, including KashFlow, FreeAgent, Directli, ClearBooks, QuickFile, Sage and soon, Xero. More integrations are on the way, as well.
Today, the company also launched a new tool that allows its SMB customers to accept direct debits online,
In the meantime, interested U.K. merchants can sign up here. Others can simply add themselves to the waitlist.
Correction: The amount of the Series A was $3.3M, not $1.5M as an earlier version reported.