Railsbank, a relatively new fintech startup co-founded by CEO Nigel Verdon, who previously founded money exchange and payments platform Currencycloud, has raised $1.2 million in a funding round led by seed investment firm Firestartr.
The company, yet to see its full launch and over a year in the making, offers what it describes as an open banking and compliance platform aimed at other companies, including other fintechs, that have global banking requirements that need to be accessed programatically via an API.
Other backers in this round include Kima Ventures and a number of notable angel investors such as Peter Jackson (CEO WorldPay U.K.), Tim Levene (Betfair, Augmentum Capital) and Phillip Riese (former Chairman of Zopa).
It follows an earlier angel investment in September last year, including from the former head of Google Wallet in Europe who, I’m told, wanted something akin to Railsbank when he was running Google Wallet. That’s because the unnamed bank Google Wallet ran on top of could not easily deliver on the promise of pan-European banking via an API.
“The problem with accessing global or regional wholesale transaction banking services from traditional suppliers (e.g. HSBC, Citi, BAML, Deutsche etc.) is that it takes 3-9 months to open each bank account, up to 9 months to technically connect (as each API is bespoke to the customer) and customers have to sink vast Capex expenditure to make this happen, before a single transaction is done. That is if the bank will even bank you!” Verdon tells me.
The main issues behind this holdup and expense is legacy technology that most incumbent banks run on, and the thorny issue of compliance. The latter means that friction isn’t just caused by technology alone but the need to comply with the law and cumbersome systems in place to ensure global banking does so. “Neither are changing anytime soon,” teases Verdon.
It is here — at the intersection of technology and compliance, and by using technology to scale compliance — that Verdon and Railsbank’s other founder Clive Mitchell, who is also a fintech veteran, see an opportunity. The resulting banking and compliance platform connects together a global network of partner banks for companies who want API access to global banking. “Access to global transaction banking with 5 lines of code,” akin to something like Stripe for banking, is the Railsbank mantra.
Specifically, the platform provides companies with a range of wholesale banking services, including IBANs, receiving money, sending money, converting money, direct debit, issuing cards, and managing credit through APIs. “Our tech solves the legacy issue by hiding it,” explains Verdon.
However, along with the Railsbank CEO’s insistence internally that its API should be considered its UX — since developers are the startup’s end user — the secret sauce is that compliance has been baked in from the start. This sees all transactions that are initiated through the platform stay in line with compliance policy enforced through what Railsbank calls its unique “Compliance Firewall”.
“For the first time the partner and/or customer’s compliance manual is live and active and not a PDF stuck in a drawer,” claims Verdon. “Every transaction (on-boarding, opening an account, receiving money, sending money, issuing a card, issuing credit etc.) has to pass through the Compliance Firewall and has to comply with compliance policy”.
To that end, the types of companies or fintech startups that could utilise Railsbank are far-ranging and Verdon says that every day the company is discovering new use-cases. (It offers a sandbox, including live account generation, to try out the platform.)
One example is a regulated investment company that needs modern API access to its banking. This could include creating accounts, receiving money, sending money etc, so that they can implement straight through processing.
Another is a lender that wants to offer a ‘banking lite’ current account to gain more data on an individual customer’s behaviour to lower the lending risk and possibly even the lending rates.
Or perhaps an Amazon merchant who wants to sell on Amazon’s European stores but needs to demonstrate compliance controls to a banking partner. They could use Railsbank to show they only accept money from Amazon including surfacing Amazon Marketplace data (via Amazon’s API) on what goods were sold for each Amazon settlement.