Bootstrapped since 2019, Montréal-based FinTech startup Zūm Rails has now raised $10.5 million CAD in Series A financing for its payments platform that seeks to merge open banking with instant payments.
Founded around a kitchen table, co-founder and chief sales officer Miles Schwartz claims Zūm Rails now moves more than $1 billion in payments monthly. The all-equity Series A round, led by sole investor Arthur Ventures, will be used to scale Zūm Rails’ platform in the United States and grow its solution with new banking-as-a-service (BaaS) capabilities.
Zūm Rails was founded by Schwartz, CEO Marc Milewski, and CTO Marcel Ferreira. Schwartz started in FinTech as a partner and chief sales officer at Montréal-based Flinks, while Milewski was one of the early employees at Versapay, where he worked on the development, sales, and operations of Canada’s first electronic fund transfer (EFT) gateway.
At Flinks, Schwartz was working on data aggregation, which connects financial accounts to FinTech partners so they can use clients’ data to provide their services, while Milewski was focused on payments.
“As Flinks really scaled, I started to notice more and more that aggregation was getting commoditized and that sales cycles were getting longer,” Schwartz said. “So I wanted to pitch the idea that there should be a platform that merges open banking with instant payments.”
He said at the time, Flinks did not want to go into payments, so Schwartz left the company and moved into his parents’ house with Milewski, which is where they began brainstorming what would eventually become the Zūm Rails platform.
Schwartz, Milewski and Ferreira built an omni-rail payment solution that allows companies to check off all of their payments needs from a single gateway. Through one API, businesses can process digital payments, including Interac, EFT, Visa Direct, and credit card transactions; send and manage invoicing and subscriptions; use aggregated customer data to prevent fraud; verify and collect know-your-customer data; and pull and analyze reports.
As the platform was being built, the federal government had begun revealing plans to introduce open banking and a real-time rail system, two initiatives that have taken years and are still nowhere close to completion. “Our bet was that we could build a better system and beat the banks and governments to it,” Schwartz said.
When asked how the startup was able to build its platform at a fraction of the time it has taken the Canadian government to implement open banking and payments modernization, Schwartz said, “The short answer is, banks and governments don’t really build software.”
RELATED: In banking licence pursuit, Koho is chasing a “seat at the table” and real competition
This isn’t to say Zūm Rails is in a blue ocean. In fact, it is up against big players that have spent years developing their own payment processing and data aggregation solutions, such as Stripe and Plaid. The difference, according to Schwartz, is that Zūm Rails “ties all of these services together, as opposed to having too many integrations that don’t speak to one another.”
Zūm Rails currently boasts over 200 customers, including Questrade, Coinsquare, and Desjardins, and works with financial services giants like Visa, Mastercard, and Fiserv. The startup achieved $10 million in annual recurring revenue last year, and according to Schwartz, has “always been profitable,” given it has been bootstrapped until now.
In the fourth quarter of 2023, Zūm Rails launched in the United States, buoyed by an integration with FinTech giant Fiserv that allows it to offer conventional card acceptance, real-time payment processing, and distribution services under one gateway.
“Before us, every single client had to do integrations to different Fiserv products in 15 to 18 months. Now, that process is three or four months,” Schwartz said, adding that Visa is also introducing Zūm Rails to its large enterprise clients in the US.
With the new funding, Schwartz said Zūm Rails wants to continue its US expansion, as well as add new BaaS products to its offering, including prepaid and digital cards. The startup, whose headcount sits at 40, plans to hire between 20 and 30 more employees in the coming months.
Zūm Rails has managed to close its Series A round during a particularly tough time for fundraising. A recent report from KPMG found that in 2023, investment in Canadian FinTech companies dropped by 30 percent in 2023.
While Schwartz acknowledged how “dark” the investment landscape has grown for FinTech startups, he noted, “When you have strong product-market fit, you’re profitable, and runway is not an issue— we’re growing month over month—luckily, that’s very attractive.”
Still, speaking to the experience of bootstrapping for almost five years, Schwartz said, “It’s not glamorous. It’s not fun. Anyone who says it is fun is lying.”
Feature image courtesy Zūm Rails.