Oct 22, 2024

22nd October 2024 Solaris, a Germany-based Banking-as-a-Service (BaaS) provider, is “at a pivotal moment – a moment that calls for a new chapter of transformation”, according to its CEO, Carsten Höltkemeyer. Solaris is “at a pivotal moment”, says CEO Carsten Höltkemeyer Founded in 2015 and valued at around €1.5 billion last year, Solaris has been grappling with regulatory scrutiny, leadership shake-ups and financial losses over recent years. The transformation, according to Höltkemeyer, who joined the company two years ago as part of the management board revamp , “is not just about refining our products or strategies; it’s about reshaping how we operate, collaborate, and build the future together”. Closures and layoffs The initiative includes sunsetting its Electronic Money Institution (EMI) business , a move which the company announced last month “will bring redundancies across the EMI team”. German news outlet Handelsblatt reported earlier this month that the company is set to lay off around 240 people – a third of Solaris’ workforce. Solaris acquired its UK-based rival, EMI (known as Contis at the time), three years ago, following a €190 million funding round. The idea was to gain a foothold in the UK and elsewhere in Europe as Contis held an EMI licence in Lithuania. Roland Folz, CEO of Solaris at the time, described Contis as a “fantastic business”. One of its major customers was crypto firm Binance, which relied on Contis for the provision of Visa debit cards to the Binance customers across the European Economic Area. The deal was initiated in 2021 and supposed to run until November 2026. It provisioned for around 2.5 million cards, which would allow users to convert their cryptocurrencies into local fiat currencies. However, Binance terminated the agreement abruptly in October 2023. In response, Solaris’ UK and Lithuanian subsidiaries, Contis Group Ltd and UAB Finansines Paslaugos Contis respectively, filed a lawsuit against Binance earlier this year in the High Court in London. The plaintiffs say the crypto exchange owes them €144 million in minimum guaranteed fees until November 2026 and are also requesting the same amount as damages for breach of contract as an alternative claim, it is understood. According to the lawsuit, UAB Finansines Paslaugos Contis holds €3.9 million in chargeback and refunds owed to Binance customers. Regulatory scrutiny Last November, Contis was fined €840,000 by the Bank of Lithuania , with the central bank saying that the firm “did not comply with the requirements for the prevention of money laundering and terrorist financing, as well as information security and business continuity risk management”. Its parent Solaris was ordered by the Federal Financial Supervisory Authority of Germany, BaFin, to ensure “proper business organisation in the areas of risk management and money laundering prevention” in December 2022. The regulator also appointed a special representative to monitor the implementation of the ordered measures. Solaris was also told that it needed to gain BaFin’s approval before taking on any new customers. Then in March 2024, Solaris was fined €6.5 million by BaFin. The regulator said Solaris had “systematically submitted suspected money laundering reports late”. Just a few months later, BaFin intervened again, warning that Solaris would be fined if it doesn’t meet the deadlines for improving its AML controls. The regulator also extended the mandate of a special representative it appointed in 2022 to continue to monitor the developments at Solaris. Financial ups and downs Solaris achieved net revenue of €137m in 2023 In 2023, Solaris recorded losses of €178 million, with the depreciation of the EMI business as the primary contributor (€123 million). In 2022, it reported a €56 million loss. Meanwhile, it achieved net revenue of €137 million in 2023, a slight increase from €130 million in 2022. Earlier this year, it bagged €96 million in a Series F funding round led by SBI Group and other existing investors. In addition, it says it has also secured “a financial guarantee of up to €100 million capital equivalent”. The new funds have been partly put towards onboarding the Allgemeiner Deutscher Automobil-Club (ADAC) credit card programme. This initiative is of great significance to Solaris. With 21 million members, Munich-based ADAC is one of Europe’s largest automobile associations. The ten-year contract (signed in 2022) empowers Solaris to issue ADAC-branded credit cards to its members. Solaris replaced Landesbank Berlin (LBB) as the association’s partner. Treading the path to profitability Höltkemeyer has also announced “necessary adjustments to the Solaris SE business” (the main Germany-headquartered operation). “We have opted to implement a more suitable target operating model which will help align our operating structure with strategic priorities,” he says. “In turn, this will increase our agility and integration across functions.” He adds that as part of this restructure, the company “will be cutting back on corresponding roles” and is making redundancies across the Solaris SE team. “While this is a difficult outcome, I firmly believe it is necessary to ensure future success and to build the financial stability of Solaris as we tread the path to profitability,” Höltkemeyer states. Höltkemeyer also announced that Solaris’ chief commercial officer, Joerg Diewald, decided to leave the company at the end of September. According to Höltkemeyer, Diewald “decided to step down from his role after completing a very successful six years growing the commercial function of the business”, including bringing over the line the aforementioned ADAC deal. Among Solaris’ other clients are American Express, Samsung Pay, crypto firms Bitpanda and Coinbase, and banking services start-ups Clanq, Finom and Tomorrow.