The 𝐒𝐨𝐥𝐚𝐫𝐢𝐬𝐛𝐚𝐧𝐤 is considered a candidate for an IPO in Q3/22. I had started this post some time ago, but then something new kept coming.
First a special auditor was sent in and then the current market situation and outlook is rather unattractive for an IPO. The bank is probably not yet known to some people, because it does not do any direct customer business. Regarding a possible valuation, I have no idea - this is more about finding out what Solaris actually does.
Solaris' business is Banking as a Service (BaaS). Solaris provides parts of its banking system to other vendors. This allows partners of Solaris to offer financial or banking services under their own brand without having to clear the regulatory hurdles for their own licenses. A key focus for Solaris is low cost and high flexibility. To this end, the core banking system was developed in-house. In 2021, the British competitor Contis was purchased. The money for this came from a Series D funding round of €190 million, which values Solaris at €1.4 billion.
𝗖𝗼𝗻𝘁𝗶𝘀 Ü𝗯𝗲𝗿𝗻𝗮𝗵𝗺𝗲
In addition to the brand and staff, Acquisition also brings a UK and a Lithuanian e-money license. Especially the UK license is helpful to tap UK. Because UK is not accessible with the German full banking license, due to Brexit. Customers of Contis are e.g. Binance and Bitpande, which run their crypto credit cards via Contis. In the medium term, teams and brands are to continue to exist separately. An integration is planned for the longer term. [1]
𝗞𝗲𝗿𝗻𝗯𝗮𝗻𝗸𝘀𝘆𝘀𝘁𝗲𝗺
The integration of Contis will mean a migration to the corebanking developed by Solaris. Running different systems in parallel over a very long period of time would not only mean additional costs, but would also form the basis for the proliferation of Legcy, which in some cases is slowing down legacy banks. It is to be hoped that the migration will go as well as with Solaris itself. 2021 was successfully migrated from the core banking system of the provider Pass Consulting to the in-house development. [2] There were no adverse effects for end customers and partners. The core banking system refers to the most important internal part of the infrastructure. The roots of the development of the in-house system go back to 2018/17. Not only was scalability, resilience, and independence emphasized during development, but a high degree of flexibility is also intended to favor the rapid rollout of new features for Solaris' partners. There is no dependency on third-party providers such as Mambu in core banking. However, modules from Mambu are used in upper layers. For development and migration, Solaris has uploaded 2 presentations on YT. [3,4] Since, in my humble opinion, a significant part of the company valuation is also generated from the own corebanking, it is worth a look, if you want to buy the shares yourself later. In the migration presentation, the failed migration at Apobank is also anecdotally referenced (12:45), without directly mentioning the name.
Solaris runs their core banking system and all remaining systems on AWS in the cloud. [5] This means that Solaris is not dependent on its own data centers and can scale down more easily to save costs when partners are no longer available or, conversely, book additional services when expanding. The disadvantage here is of course that it must be ensured that all data remains in the EU and could not be given out to US authorities, even if the data is encrypted. At this point, however, it is important to note that services such as AWS (or Azure from MS) are now probably too big to fail. Outside of a proper regulatory hammer blow, I don't see any risk there. This will continue to be a bone of contention and occasionally some new add-on document will be passed through all instances, from AWA, Solaris, their partners to the end customer, where it won't be read anyway.
The modern core banking of Solaris, adapted to its own requirements, is probably currently one of its greatest trump cards.
𝗘𝘅𝗽𝗮𝗻𝘀𝗶𝗼𝗻
In addition to the aforementioned acquisition of Contis, there is also expansion into other countries through other means. Subsidiaries have been created for France, Italy, and Spain, and they now offer their own services with the corresponding countries IBAN. [6] In the course of the expansion, there have also been personnel reorganizations and the local branches are probably being given quite a lot of autonomy. [7]
The offers of the Solaris can be divided into different areas, these as well as the partners, which cooperate in these areas with the Solaris are to be discussed in the following. The list of partners is certainly not complete and not all of them are of equal value for Solaris.
𝗗𝗶𝗴𝗶𝘁𝗮𝗹 𝗕𝗮𝗻𝗸𝗶𝗻𝗴
Solaris has several fintech partners whose goal is to replace a main account at a traditional bank and/or offer additional features. The advantage for Solaris is that they only need to develop features once, but can offer them to multiple, possibly competing providers.
𝘝𝘪𝘷𝘪𝘥 - N26 but better
https://app.getquin.com/activity/KCFQxkBfCY (tl;dr nice)
𝘕𝘶𝘳𝘪 used to be Bitwala - would like N26 plus crypto
https://app.getquin.com/activity/flLcSrJwou (tl;dr mies)
𝘛𝘰𝘮𝘰𝘳𝘳𝘰𝘸 - N26 for ecos.
Saving the planet by paying bank fees or something.
𝘐𝘯𝘴𝘩𝘢 - N26 Islam compliant.
Seems to have repositioned itself so as not to scare away Almanns. I no longer read anything about Islam on the site. It is now called sustainable and ethical.
𝘏𝘦𝘭𝘪𝘰𝘴 dot do - Tomorrow for Frenchmen
While paying for the baguette, save the planet by paying bank fees or something.
𝘌&𝘝 𝘚𝘮𝘢𝘳𝘵 𝘔𝘰𝘯𝘦𝘺 - N26 for BWL Justus
The value of inherited real estate thanks to Sprengnetter estimates right next to demand deposits and custody accounts.
𝘗𝘦𝘯𝘵𝘢, 𝘒𝘰𝘯𝘵𝘪𝘴𝘵 𝘶𝘯𝘥 𝘍𝘪𝘯𝘰𝘮 - N26 Business
In addition to individuals, businesses or self-employed individuals also need an account. As I understand it, the providers don't take much from each other. Kontist seems to be a bit ahead with lexoffice and sumup cooperations. But I have not looked at the providers in detail.
𝘝𝘦𝘳𝘳𝘦𝘤𝘩𝘯𝘶𝘯𝘨𝘬𝘰𝘯𝘵𝘦𝘯
For BSDEX, Bison and Trade Republic Solarisbank holds clearing accounts in the name of the customer.
𝘚𝘢𝘮𝘴𝘶𝘯𝘨 𝘗𝘢𝘺
The virtual Visa cards run through Solarisbank.
𝗦𝗼𝗹𝗮𝗿𝗶𝘀 𝗗𝗶𝗴𝗶𝘁𝗮𝗹 𝗔𝘀𝘀𝗲𝘁𝘀 𝗚𝗺𝗯𝗛
Solaris has its own limited liability company for crypto fun. Looks like more than it is in my opinion at first glance. Bison and BSDEX use settlement accounts as described, that's it. Bitstamp uses Solaris as a payment processor. The only full-fledged customer is Nuri. Or rather, I could not find any other providers that use the custody and brokerage solution of Solaris Digital Assets GmbH. One reason for the lack of customers in the business unit could be the lack of cryptocurrency support. Nuri only offers 2 cryptocurrencies and if you look into the readme of the github documentation you will also only find these 2 currencies. [8] Another obstacle is likely to be regulation. A final crypto custody license is not yet available, but it was applied for at the end of 2020. [9]
𝗙𝗿𝗼𝗻𝘁𝗶𝗻𝗴
Platforms need credit in their business model and Solaris serves all the steps that are subject to banking law when it comes to credit. In this process, the loan terms are influenced by Solaris' partners. The loans then end up with the partner and are not on the balance sheet of Solarisbank. The credit risk is therefore borne by the partners.
𝘈𝘶𝘵𝘰1 - Car financing
𝘊𝘈𝘗𝘛𝘐𝘘 - Online financing platform for chamber professionals.
Loans for the establishment of a medical practice, a law office, etc.
𝘔𝘢𝘯𝘴𝘢 - Loans for self-employed and small businesses (France).
𝗣𝗿𝗶𝘃𝗮𝘁𝗸𝗿𝗲𝗱𝗶𝘁𝗲
You want to buy something you can't afford or you want to buy shares with credit leverage? Here too there are partners of Solarisbank who will help you. The credit risk lies with Solarisbank. Verivox and smava mediate loans from Solarisbank. American Express and Samsung Pay offer installment payments (with decent interest rates) via the splitpay function.
𝗞𝗬𝗖
For regulatory reasons, it is necessary in many places to know his contractual partner more precisely. This know your customer part can be done by Solarisbank, no matter if it is B2B or B2C relations.
𝘖𝘵𝘵𝘰 𝘔𝘢𝘳𝘬𝘦𝘵𝘱𝘭𝘢𝘤𝘦
Onboarding of merchants in the Marketplace is done through Solarisbank [10] For those who want to take a look at the KYC route for this B2B case [11].
Otherwise, Penta, auxmoney, smava, American Express and Tomorrow are explicitly mentioned. I would assume that more of the already mentioned partners use this service permanently or temporarily.
𝘉𝘢𝘯𝘬𝘪𝘥𝘦𝘯𝘵
Bankident is a special form of automatic verification. Here, the person to be identified logs into his or her account and confirms an automatically generated microtransaction. This method is used by Samsung Pay and Coinbase, for example. [12]
𝗣𝗮𝘆𝗺𝗲𝗻𝘁𝘀
Solaris acts as an acquirer for Alipay. [13] What this cooperation is worth is hard for me to judge. Alipay is a giant, but is mainly used by Chinese tourists here. Likewise, Alipay has contracts with countless other payment service providers, but these, like the one with Solaris, date back to the time before the conglomerate displeased the party. Possible data leakage and the question of how the data is used, e.g., for SocialScoring, are of course open issues. [14]
Skyee works with Solaris and is a service for payments across countries. Am however undecided whether the provider is still really active. The provider had announced to close receiving accounts from 01.02.22. [15]
Solaris and viafintech (formerly known as barzahlen) have entered into a cooperation. This will enable Solarisbank to prospectively offer mountain money transactions, even without its own infrastructure, via its partners. [16]
𝗞𝗼𝗻𝗸𝘂𝗿𝗲𝗻𝘇
Due to the broad positioning, there is of course no competitor that works 1:1 on the same business areas. Basically, however, two issues can be addressed in neobanking. Already independent neo-banks, and the "independence" of partners. N26 and C24 have their own banking licenses and can take customers away from partners like vivid or Tomorrow with their own offerings. It is also conceivable, of course, that vivid or other partners could seek their own license in the longer term in order to break away from Solaris.
Raisin is very active in the fronting and credit business and represents a significant competitor for Solaris there. Also worth mentioning is Sutor Bank. This offered various BaaS services and was, for example, behind Zinspilot and the Riester offering Fairr. Sutor Bank was already active in the crypto sector with some partners. After the exit of the founders and the purchase by BCB Group, a complete focus on digital assets should now follow. Bankhaus von der Heydt, which was acquired by Bitmex at the beginning of 2022, is active in the same field.
Tuum, formerly Modularbank, is not yet active in Germany but is a BaaS competitor on the European level.
𝗕𝗮𝗙𝗶𝗻 𝗣𝗿ü𝗳𝗲𝗿
At the end of January, BaFin sent a special auditor, from PwC, to Solarisbank. The reason was the rapid growth and open questions in compliance. The auditor is to monitor Solarisbank until the middle of the year. [17] Possible consequences can be seen at N26. The monthly number of new customers has been limited. Likewise, limits on mortgage-backed financial instruments have been imposed on N26. [18] A clean sweep of the audit would of course be a good foundation for a Solaris IPO.
𝗨𝗸𝗿𝗮𝗶𝗻𝗲
While searching, I noticed that Solaris has many job postings for Ukraine. In September 2021, a "tech hub" was opened there. [19] That's probably fancy for we have a subsidiary in Kiev for IT stuff. There are 50+ employees working at SolarisTech. The total number of employees is 400+. To what extent there are risks for the continuous workflow no idea. According to the job postings, home office is possible from all over Ukraine. So I assume that in case of emergency the employees could work from anywhere.
𝗗𝗮𝘁𝗲𝗻𝘀𝗰𝗵𝘂𝘁𝘇𝘃𝗼𝗿𝗳𝗮𝗹𝗹
At the end of January, Solarisbank experienced an error where customers' first and last names, transaction amounts and IBAN of the settlement account of other BSDEX customers were displayed. Only a small number of end customers were affected and 41 account statements were reported to be incorrect. The incident is annoying, but the affected data does not enable identity theft. Compared to other incidents, the number of people affected is extremely small.
𝗙𝗮𝘇𝗶𝘁
Hopefully it has already come through that Solarisbank serves a wide variety of partners, some of which overlap in their offerings. Certainly the bank is dependent on the partners in general, but not on the individual partners. Very clearly I find the overlap in the providers of the business accounts, as well as Tomorrow and Helios. Solarisbank benefits from every partner, regardless of whether the partner is in cocurence with another partner of Solaris.
Because features developed on behalf / on demand of the partner are not technically dependent on the partner, the same development can be sold multiple times. As an example the round up feature of Tomorrow is mentioned. [20] My assumption is that this (admittedly simple) function was developed for Tomorrow. If Tomorrow should no longer exist, the functionality would remain in the repertoire of Solaris. Solaris could also pay for the exclusivity of certain options. For example, I could not find the round up function at Helios or other providers.
Problems like the delayed launch at partners like xpay / legatus do not really affect Solaris. Because the functionalities have been available for a long time. Even if it is not about the numbers, the lineup seems to me to be very broad and I do not see any dependence on individual providers at the moment. Neither on the software side (Mambu) nor with the partners. Currently, no profits are made, but there is enough money through the funding rounds alone. If you want to have a look at a numerical analysis look here: [21]
I see the strongest area as the field of neobanking, where I know of no comparable BaaS provider. (Spoiler: This is also where most of the money was made in 2020) In the credit and fronting business, they will probably have a duel with Raisin, and there seems to be a lot of catching up to do in the digital assets, if they really want to expand this area in the long term.
[1] https://financefwd.com/de/solarisbank-funding-contis/
[3] youtube com/watch?v=UFAm09V_fP8
[4] youtube com/watch?v=D_1seU8T710
[7] https://finanz-szene.de/fintech/solarisbank-baut-organisation-um-und-schafft-business-units-ab/
[8] https://github.com/solarisDigitalAssets/docs/blob/master/examples/README.md
[19] https://newsroom.solarisbank.com/202433-solarisbank-eroffnet-tech-hub-in-der-ukraine
[20] https://support.tomorrow.one/de/support/solutions/articles/15000045450-was-ist-aufrunden-
[21] https://finanz-szene.de/fintech/unicorn-zieht-blank-wie-gut-steht-die-solarisbank-wirklich-da/
