Inside Railz, a company that strives to become the ‘Plaid for accounting’

Railz pitches API-based direct access to small business accounting data, displacing PDFs, Excel spreadsheets, and other legacy financial data collection methods.

Railz, a Toronto-based company that offers an API that integrates with most accounting software service providers used by small businesses, wants to help banks and fintechs harness and analyze accounting data easily and quickly. 

The company on Thursday announced that it raised more than $15 million, including $12 million in Series A funding, on top of a $3.1 million seed round that closed at the end of 2020. Railz said it tackles a key hurdle for banks and fintechs that need to pull raw business accounting data from a myriad of different platforms to make decisions on products they offer clients, including loans.

Railz’ API, which the company said works with most accounting platforms, is able to pull the data, clean it, and offer insights for banks and fintechs that need a quick assessment about a company’s cash flow, expenses and financial health situation.

“Most of the banks that we’re working with are still using PDF and XLS [Excel spreadsheets],” Sohaib Zahid, CEO and co-founder of Railz, told FinLedger. “They also don’t know what [accounting platforms] their businesses are using today.”

Railz, founded in 2020, has some large bank customers, including Buffalo-based M&T Bank that’s tapping Railz’ technology to help it project cash flows. It’s also working with two other top-five U.S. banks it wouldn’t name. Zahid said the company also serves fintech customers and wealth management firms, including banking startup Rho, B2B e-commerce payment gateway Rumbleship, and embedded lending infrastructure company Lendflow.

“Anyone who wants to build a financial services app can actually do so on top of Railz,” he said, noting that companies developing banking, payments, and other financial planning applications can build solutions using Railz’ tools.

As Railz goes to market with its API, banks and fintechs have amped up their efforts to provide tools to help businesses predict and manage their cash flow needs, including HSBC, Bank of America, Kabbage, and others. 

“Businesses use accounting software as a single source of truth to record the financial health of their company,” said Jeremy Solomon, a partner at Nyca Partners, who is also joining the Railz board. “Sharing this data with another party is currently a manual process that is slow, expensive, and error-prone.”

FinLedger spoke with Zahid to learn more about the company’s product strategy. Answers have been edited for clarity.

What problem is Railz trying to solve?

Small and medium-sized enterprises use an accounting software system as their single source of truth. That’s great for the small business, but when it comes to having access to that data – let’s take lending as an example – it’s a lengthy process. [That’s because] the small business has to go back to the bookkeeper and ask them to create normalized statements so they can submit that to the bank to get a loan approved. 

That sounds messy. How does Railz address this pain point?

What Railz does is pull data on behalf of our financial institution [partners]. We’re a data-as-a-service platform that not only connects, normalizes and analyzes that accounting and financial data from accounting service providers. We give that to other partners for lending use cases, or audit use cases, portfolio monitoring, financial planning and analysis –  the list goes on. We do this to make financing decisions and building those applications faster, better and easier.

Why can’t a bank or fintech startup just use a direct API connection to Intuit Quickbooks or other accounting software tools to get accounting data, instead of relying on Railz?

They can. The APIs are available through QuickBooks. [But] our work starts after the data is pulled out of the system. We’re not just a [data] extraction service. Cleaning that data is a massive lift. Think about it this way: When you pull crude oil out of the ground, you don’t just put directly into a car. It has to go to a refinery. We are that refinery, and we’re also the gas station. [We] clean it, and we also provide it to you, and on top of this data, we build a lot of analytics, including things like liquidity ratios, profitability ratios, EBITDA, loan-to-expense ratios, probability of default, et cetera.

How is your offering different from Plaid?

We don’t compete with companies like Plaid. We see a world where companies like Plaid and Railz exist together. Plaid is very well oriented to the consumer space, because as consumers, you can look at your bank accounts, and you can really put a worth on yourself as an individual. 

Businesses have multiple bank accounts, and all of them connect directly into the accounting system. Businesses also have incoming invoices from other sources, payments coming in from Stripe or other frontline point-of-sale systems, and then they have payroll. Plaid doesn’t capture a lot of that. Accounts payable and accounts receivable typically only come up in your accounting [system].

Who do you compete with, and how do you differentiate?

Our direct competitor is a company out of the U.K. called Codat

We create a universal ledger where we map every single accounting software against it. When banks use us, they don’t have to map against every single accounting software – they just map against Railz. 

What do you intend to do with the new funding you announced this week?

We have massive inbound demand today, and as part of that, we’re going to continue to build our data science, data engineering and product teams. We’re also going to double down our revenue team, marketing, customer service and sales teams. We have 22 team members today, and we are actively hiring another 30 over the course of the next two months.

Most of your customers are in the U.S., so why did you choose to base the company in Canada?

Canada is a great place to build a business. There’s a super supportive government. We’ve seen four or five unicorns in the last two months come out of Canada. The Toronto, Waterloo, Montreal and Vancouver corridor is amazing for technology talent – Shopify, Google, Microsoft and Slack are here. And it’s relatively cheaper [than the U.S.]

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