Last week was quite a week for German infrastructure provider Solaris. It started with the final steps of takeover of the co-branded credit card program of the German automobile club ADAC (Focus; German). And the week ended with the announcement that it is shutting down its activities under its Electronic Money Institution (EMI) licence (Solaris). Both news are actually tightly connected; let me explain how.
Back in 2021, when fintech infrastructure was in a big hype cycle, Solaris acquired UK-based banking-as-a-service provider Contis. Contis’ business relied on their British and Lithuanian e-money licences. A year after the acquisition, Solaris retired the Contis brand, and the activities became known as the Solaris EMI business. Solaris believed it was gaining two things from this acquisition. Firstly, an entry into the UK market. While Solaris can passport its German bank licence across the EU (yes, with some limitations and challenges), since Brexit, the UK market requires a separate licence. Secondly, Solaris owns a bank licence in Germany, but Contis has e-money licences in the UK and Lithuania. Thus, Solaris did not only get entry to a new market but also gained another licence in the EU. While there is nothing that German Solaris cannot do that Lithuanian Contis can do, it still might have been attractive to onboard certain EU customers onto the Lithuanian licence instead of the German one.
Fast forward to 2024. The landscape has changed a lot. The regulatory pressure in all markets that Solaris is operating (not just UK and Germany, but also Lithuania) has increased, which has resulted in higher costs to run the business. But the most important change has happened to Solaris itself. In the years before 2021, Solaris was extremely successful in partnering with unregulated companies to offer B2C and B2B banking products. But at that point, this meant working with neobanks. Today, many of these neobanks that had initially partnered with Solaris have left: some of them have obtained their own licence, such as Vivid or Finom, and others were acquired by companies that have their own licence, for example, Penta. What we all know today is that European neobanks are not very good customers for a banking-as-a-service provider. Today, it is a lot more interesting to partner with non-financial brands, or at least with niche industry players, that (hopefully) never go for their own licence.
For many reasons, Solaris never wanted to focus on the really small customers and always aimed for the enterprise deals. The partnership with Samsung for their split-pay product in Germany and the co-branded credit card deal with German automobile club ADAC are proofs for that. Which closes the story. While the market for neobanks got tougher, also the market for co-branded credit cards got reshuffled. In this market, a provider like Solaris is not competing against the usual banking-as-a-service providers that ‘only’ have an e-money licence, but it is competing against incumbent banks.
The acquisition of Contis was a great opportunity for Solaris in 2021. But a few years later, we all know that it did not work out. The rise of banking-as-a-service providers and the shift from neo-banks to non-financial brands have changed the market fundamentally. Solaris needed to adjust to this and is likely still in a transition process. I would expect that they will now focus even stronger on co-branded credit card deals and less on the standard banking-as-a-service offering. Or what do you think?
