Emre Talay, Orkhan Abdullayev and Nicolas Thouzeau, Co-Founders of Payrails

At EQT Ventures, we’ve been convinced that there is a huge opportunity in payments and we are excited about the space. After all, Europe has produced an ‘American size’ winner for every generation of payments: Worldpay/Vantiv, then Adyen/Stripe. With our early investments in industry leaders such as Banking Circle (payments infrastructure) and Volt (real time payments network); we have invested behind this conviction. We are now excited to lead a $14.4M round into Payrails, the payments operating system for marketplaces and platforms. With this, we join our friends at a16z, HV Capital and General Catalyst in backing what we believe is one of the strongest teams in payments in Europe.

While working at Stripe, I first noticed the very unique problems of global payments, and was pretty convinced that it would be hard for a single player to solve payments all over the world. With a very specific thesis around multiparty + multiprocessor enterprise payments, we had been looking for a team focused on the problem and are privileged to be on the Payrails journey. Here is why:

1. Platform/marketplace payments is a huge, underserved market with a lot of complexity:

Just think about all the transactions that one makes on the internet on a daily basis: Uber, Amazon, Etsy — most of these are marketplaces with at least 3 entities: the seller, the buyer and the platform. McKinsey estimates that this is a $9T market, growing between 19–22% annually, and it happens both on a consumer and b2b level. B2B marketplaces are transacting for more than 12trn annually. This is hard to do in a scalable and efficient way: you need to accept a payment, then split it across 3 (or more) parties and then settle them all in real time. This also gets increasingly complex as you think of multiples: multiple currencies, multiple geographies, and multiple parties. In addition, you have complexities around merchants of record, refunds and chargebacks — all while maintaining a high authorisation rate and low costs.

I saw this first hand during my time at Stripe. Enterprises also need several functionalities on Day 1, and this gets hard for startups to capture unless they are able to prioritize correctly. This requires prior expertise in building such products. There is also no solution today that can solve this problem at scale with the right level of flexibility except an in-house payments team which can run into hundreds of people.

2. As payments are getting commoditised, these companies are moving towards a multiprocessor world:

At scale, marketplaces and platforms are extremely cost conscious and care more about performance and cost, than anything else. Increasingly, most large companies are also maintaining multiple processing relationships instead of complete dependency on a single provider — 59% of them. This not only helps them with redundancy, but also with payment method coverage, cost optimisation and authorisation rates uplift. This goes into a territory of complexity that requires an in-house payments team. There is no solution that is currently available that serves this need well — most don’t have the sophistication required for mid to large scale marketplaces and platforms.

3. For this segment, the only option today is building their own in-house teams:

The complexity of marketplace and platform payments, coupled with an increasing move to multiprocessor makes it increasingly difficult for large platforms and marketplaces to find a suitable payments solution. Today 60% of businesses have multiple payment providers. Most, such as Booking.com, resort to building their own payments solution — this takes a large team of engineers, many months and a lot of time before it reaches the level of performance that a product like Payrails can provide. When working on Booking’s payment systems, Marnix faced this exact problem and was hard pressed to find a solution that would work. This further confirmed our hypothesis that Orkhan and team were focused on an unsolved problem in the market and that the total cost would be a massive efficiency driver.

4. Most platforms want control of their data and bring their own KYC:

We are increasingly headed towards a modular world: where platforms want individual modules for pay-ins, payouts, reconciliations — and want to bring their own KYC where possible. In addition, availability of alternative/local payment methods integrations to best of breed POS software remain the two largest priorities when companies choose their payment processor. While payment processors are neutral, in an increasingly competitive environment large platforms would want to protect their own data and keep the commercial flexibility.

5. Enterprise payments is hard, and needs a team that knows how to do this the right way:

Ultimately, as with all investments, this comes down to the team. We’ve spent the last year speaking with Orkhan, Nicolas and Emre and are confident that they know this problem and how to solve it because of their deep experience in payments at Delivery Hero (DH). The three of them led the DH payments team, which built out an extremely complex payments platform that spanned over 70 countries. They’ve faced the exact same problem that they’re trying to solve during their work there, and over the last decade have worked towards operating payments efficiently at scale. Delivery Hero thishas a multi-party ecosystem and its payments systems are super complex: payments splitting, multiple currencies, different types of payment methods, payouts and multiple layers of complexity owing to different acquisitions. This team was able to successfully build out a scalable payments system there and has now taken this to similar platforms so that they don’t have to invest in in-house payments teams. Early feedback from their customers is extremely positive, and their proactive approach to closely partner with merchants reasonates very well with their customer base.

Perhaps a quote from a reference that we did on this team encompasses their ability well: ‘The Swiss army knife of payments’

We believe that Payrails’ software approach (versus being in the flow of funds) solves these problems elegantly and in a quickly scalable way that adds value to their customers. We’re excited to be a part of this journey and can’t wait to see the Payrails team solve payments for leading marketplaces and platforms.