Railsr, the UK embedded fintech once valued at nearly $1B, goes into bankruptcy protection under new consortium owner

Startups are facing a moment of reckoning in the current economic climate, and today one of the more promising in the world of fintech has cracked under the pressure. Railsr, the London, U.K. embedded finance startup formerly known as Railsbank and once worth nearly $1 billion, announced today that it has been acquired by a shareholder consortium; and as part of the deal, it's going into administration so that it can continue as a going concern as it restructures.

The consortium, which trades under the name Embedded Finance Ltd, includes previous Railsr's investors D Squared Capital, Moneta VC and Venture Capital. The company is not disclosing the value of the deal. It was valued, when still solvent, at around $250 million back in October 2022, so that is one starting point.

This sale and bankruptcy state caps off a difficult period of uncertainty at Railsr. Previously, sources have told TechCrunch that Railsr was in talks to be acquired by Flutterwave, the pan-African financial services company that was valued at more than $3 billion in a fundraise last year, although a deal never materialized.

It should be noted that Flutterwave has been embroiled in its own controversies, but from what we understand it was looking to acquire Railsr to break into Europe, which has a strong financial corridor with Africa due to large immigrant populations from the latter region living in the former region.

Railsr was an early mover in the world of so-called embedded finance -- fintechs that build and run APIs for banking, payment cards and credit products, which are in turn used by other fintechs (such as neobanks) as well as other brands and businesses that also want to offer financial services to their customers to grow loyalty, expand revenue streams and more. There are some 5 million people using those services currently.

In all, Railsr has raised more than $185 million, and it was once valued at close to $1 billion. But there have been rumors swirling for months that the company was in trouble and looking for a buyer. Sky News reported that a round that the company raised in October 2022 (a Series C of $26 million plus $22 million in debt) was done as a significant down round, valuing the company at around $250 million. (Note: PitchBook's figure is slightly higher at $278 million.)

It's a notable fall for a startup that once had very big ambitions, and it raises a lot of questions about what Railsr's fate might signify. Was its fall due to the startup's own strategy, or execution? Or, is it a signal of more woe to come for other embedded finance players? More generally, a wider swath of fintech startups that might not be profitable are coming to the end of their runway, and finding it hard to raise more cash may be coming to terms with their own next steps -- and the outcome may not be pretty.

Rick Haythornthwaite, who had been the chair of the board prior to the sale, will stay on in the role, the company said.

"We are absolutely delighted that Railsr is now able to rebuild momentum and return to growth," he said in a statement today. "It is a business that deserved to be recapitalised. Railsr has a best-in-class technology platform that has already given hundreds of fintech customers competitive advantage. A huge number of people across the financial ecosystem believe in Railr's potential and have worked very hard to make this transaction a reality. We will now get back to basics and manage the business methodically and constructively. We have secured a new chapter for Railsr and are excited about what the future holds."

Indeed, the investors are still bullish of the potential for embedded finance as a business, which is why they've cobbled together to take on Railsr and give it another shot.

"Embedded finance has the potential to spur innovation, shape business models and shift consumer experiences," said Dan Adler, managing director of D Squared Capital, in a statement. "Railsr has the opportunity to maintain its position as the market leader in Europe and capture the ever-burgeoning embedded finance market opportunity. We're delighted to play a role in this pivotal moment for the company and its customers."

"Railsr's customers, technology and people have always impressed me and so I have never stopped believing in Railsr," added Meirav Har Noy, co-founder and managing partner of Moneta VC. "It is truly a global pioneer of embedded finance, operating at the very heart of London's innovative fintech scene. We know we need to work extremely hard to support our customers and navigate a fast changing regulatory environment, but it's an exciting moment in time to ensure the business remains world-leading, in a market valued in the trillions. I can’t wait to seize the opportunities ahead of us.”

"Macro economic challenges aside, this action means we have successfully stabilised Railsr which operates systemic backbone infrastructure underpinning the UK financial system," added Mo El Husseiny, founder of Ventura Capital. "This is good news for its customers and for the millions of end connected users sitting atop the Railsr platform. Embedded finance is the future and its potential is huge. We are stepping into this future together with our trusted partners."

The company added that while it's in administration no services are being interrupted, and that two other operations that are connected to Railsr, Payrnet Limited in the U.K. and UAB Payrnet in Lithuania, are not in administration and will continue to trade as before.