Programmable fintech payments startup Sila raises $7.7M seed to wipe out ACH

Fintech is white hot these days, with major acquisitions and funding rounds galore. It’s also a relatively new space, with startups only really breaching the thicket of regulations that defines the modern banking and finance world in the past few years.

So it is fascinating to watch how Shamir Karkal, one of the original fintech entrepreneurs, is coming back for a second round in this still-nascent industry.

Karkal co-founded Portland-based Simple back in 2009, a company that was among the first of a wave of startups now generally known as “neobanks.” Karkal and his co-founder Josh Reich grew the online banking startup for a while before eventually selling the company to BBVA for $117 million in 2014. He then spent several years integrating Simple’s systems into BBVA’s as well as building out the company’s API products like BBVA Open Platform.

Karkal became “frustrated” though at handling the incredible bureaucracy that comes with working within a large, 150-year-old-plus banking institution, saying that “you could integrate into the sandbox in a couple of weeks, [and] it would only take you a couple of years to get through risk compliance, legal, and everything else internal.” So he finally headed back out on his own in late 2017 to explore where fintech was headed next.

He eventually connected with three co-founders, Angela Angelovska, Isaac Hines and Alex Lipton and began thinking about how to rebuild finance from the ground up, starting with the venerable but creaky payments system known as ACH. ACH continues to power much of U.S.-based financial payments, but it is slow — taking days to process — and is still built on ideas first fleshed out decades ago.

Together, their thinking eventually turned into Sila, which is a payments and banking API infrastructure company designed to eventually supplant ACH as the payments choice for companies who need to move money. Sila follows the ERC-20 token protocol and is built on top of the Ethereum blockchain.

The startup announced today a $7.7 million seed funding round led by Hope Cochran of Madrona Venture Group and Rick Holt of Oregon Venture Fund, who will both be joining Sila’s board as part of the investment.

Sila’s key product is an API for identity verification, which empowers developers to identify their users, and then use that info in the company’s banking API, which allows users to debit their accounts and move funds from one account to another. On top of that foundational infrastructure, Sila’s Ethereum basis allows for automatic creation of smart contracts, which should allow for more rapid deployment of financial applications.

Karkal sees greater movement to online banking services, particularly given the outbreak of novel coronavirus underway across the world right now. “I think this whole crisis, if anything, will accelerate that change, because people weren’t really going into bank branches that much last year, and they’re definitely not doing it now and I don’t think they’ll just start doing it again next year.” Without the physical branch infrastructure in place, financial services have to solve for problems like individual and business identity verification.

Cochran of Madrona sees a huge opportunity for better payments solutions, given her former experience as a CFO of King Digital, the producer behind popular mobile game Candy Crush, and Clearwire, a telecom operator. Payments “seems like it should be easy but it is not,” she said. “I think people who haven’t lived in payments think that they just happen [but] the amount of time it takes to move money always frustrated me” as CFO.

In terms of customers, Sila is in production with several, and the team is focused on reliability and scalability. That was ultimately why the team decided to start with Ethereum as a base, rather than rolling their own solution. “Speed is always a relative thing — you get transactions on Ethereum in like one or two minutes, which is not two seconds but it’s still way better than two days for an ACH” transaction, Karkal said. Ultimately, he sees a future where customers can pick and choose whatever ledger technology they might wish to use.

One key aspect of Sila’s pricing model that might be attractive to certain customers is that the company has fixed, flat-rate pricing for all transactions. It’s pricing — like many fintech startups these days — is a combination of SaaS subscriptions and fixed transaction fees, providing companies with better options around transaction volume than incumbent payment solutions.

The company intends to use the venture funds to focus on filling out more of its API offerings, as well as expanding its customer base. You “can’t underestimate how many businesses trip into needing payments,” Cochran said.

In addition to Madrona and Oregon, Mucker Capital and 99 Tartans joined the round along with Transferwise co-founder and CEO Taavet Hinrikus and Jerry Neumann.