After spending three years working on SMS authentication at Zenly, Prelude wants to improve SMS onboarding

Prelude is a new French startup focused on SMS authentication; announced new funding from Singular and Seedcamp on Wednesday. The two founders met while working for Zenly, a popular location-sharing app with tens of millions of users that was acquired (and later shut down) by Snap. While you may not think much about those verification codes, the Zenly team has thought about this topic seriously. It turns out that it is very tedious to use SMS verification codes that work reliably.

“Initially, when I started looking at this problem at Zenly, we only had one provider. And honestly, when I joined the company, I thought it would be a problem that would be fixed in a few months and we could move on. As it turns out, I spent most of my three years at Zenly on this issue, and we built a team around it,” Prelude founder and CEO Matias Berny (pictured above left) told TechCrunch.

You probably don’t pay for text messages on your personal phone, but phone providers still charge companies for those messages. And if you have a large user base, SMS verification can be a very expensive cost center.

At the end of 2023, the Signal Foundation shared its operating budget for its popular messaging app and service; SMS verification codes alone cost $6 million a year. As a comparison, storage, servers, and bandwidth account for $7 million per year completely.

You may think that it is expensive, but – at least – that this is a problem that has already been fixed. A few years ago, Twilio made it easy to send SMS using scheduled calls, after all. Other companies followed suit with SMS authentication APIs.

But when you request a verification code, the request is forwarded to several carriers and various intermediaries in many countries. This patchwork means it can take a while before you get a verification code — if it doesn’t fail completely.

“What we’ve been building at Zenly — and now at Prelude on a larger scale — is essentially a Skyscanner for phone number verification. We will find the best route at any given time to verify the user’s phone number,” said Berny.

This feature alone can help companies improve their conversion rates. But it can also help companies save money since new customers don’t have to press the “resend code” button if they haven’t received anything.

“Besides the smart routing aspect of the product, there are many other issues that need to be addressed,” Berny said. Fraud is one of them. “There are fake users who ask for fake codes to verify fake numbers with the aim of getting part of the cost of SMS,” he added.

According to the Prelude team, these fraudulent intermediaries who generate fake users to generate artificial SMS traffic can account for around 30% of SMS verification codes. That’s why the launcher tries to identify fake, visible numbers with various signals to stop text messages in the first place.

Prelude also does not charge its customers based on the number of text messages sent to initiate. It aligns incentives with its customers as it charges for each verification. This is also why Prelude supports other messaging services, such as WhatsApp and Viber; it’s more about authentication than SMS.

Many popular consumer apps, such as BeReal and Locket, already use Prelude. Companies in the fintech or crypto industries, such as Alma, Sunday, and Bitstack also rely on Prelude to verify phone numbers.

The startup has raised $8 million so far with Singular and Seedcamp leading the company’s seed round and various angels also participating. In total, the company has verified the phone numbers of 100 million different user accounts so far, it said.