Banking-as-a-Service Business in 2024: Less Tech, More Fin?
Since day one, Solaris (formerly SolarisBank) has been one of Europe's go-to Banking-as-a-Service (BaaS) providers. The Berlin-based fintech has enabled many fintechs and retailers in their market entry and product development since 2015.
Solaris was on a positive streak until BaFin’s post-Wirecard measures started hindering its day-to-day operations;
In December 2022, the Federal Financial Supervisory Authority of Germany, BaFin, ordered Solaris to ensure “proper business organization in the areas of risk management and money laundering prevention” and appointed a special representative to monitor the implementation of the ordered measures. Accordingly, all new clients of Solaris were first required to be approved by BaFin.
Later, the fintech company was fined €6.5 million due to deficiencies in anti-money laundering (AML) reporting. An additional warning was published in the summer of 2024, reminding Solaris about the continuing issues.
When Solaris started mass layoffs, and some partners started leaving, the media started following the developments more closely to catch a pattern. The later fundraising struggles were interpreted by fintech experts as a sign of hyper-growth and business model weaknesses.
When Solaris raised €96m in Series F in March 2024, embedded finance fans had a fresh breath of air. Nevertheless, the loss of partners and clients revealed something a bit more systematic than simply Solaris-related challenges.
The recent struggles of Solaris, particularly its decision to discontinue significant parts of its Electronic Money Institution (EMI) business, paint a complex and potentially concerning picture for the future of Banking-as-a-Service (BaaS) in Europe.
As one of the key players in the European embedded finance sector, Solaris has been instrumental in facilitating the growth of fintech startups by providing crucial banking infrastructure.
However, its recent setbacks highlight broader challenges within the industry, including increased regulatory scrutiny, competitive pressures, and the financial instability of the fintech sector itself.
The Solaris Downfall: Key Factors and Implications
Solaris' decision to shut down parts of its EMI business, formerly operated under the Contis brand, marks a significant shift in its strategy.
Acquired by Solaris only a few years ago, Contis was once a promising player in the payments space, known for issuing Visa debit cards for major crypto platforms like Binance.
However, a combination of regulatory hurdles, market challenges, and the inability to meet growth expectations has led to this retrenchment.
The closure of the EMI operations, accompanied by layoffs, suggests that Solaris has struggled to maintain profitability in a highly competitive and volatile market. The company cited difficulties onboarding new partners and growing revenues as core reasons behind this decision.
This is particularly concerning given that the EMI business represented a key pillar in its broader BaaS offering. By losing this capability, Solaris risks weakening its position in the embedded finance market, where customer-centric solutions and rapid onboarding are critical for success.
Regulatory Pressures and Fintech Market Consolidation
Increasing regulatory scrutiny is one of the most significant challenges facing Solaris and other BaaS providers in Europe.
Solaris has already been subject to close oversight from BaFin, Germany’s financial regulator, which imposed restrictions on its ability to onboard new business partners.
This regulatory clampdown echoes similar actions taken against other fintechs like N26, reflecting BaFin’s post-Wirecard cautious approach to institutions with full banking licenses.
It's known that many Solaris partners and customers were offboarded in 2024 in an attempt to decrease the compliance burden of the once-German fintech star. The customer onboarding restrictions hamper Solaris’ ability to grow and signal broader regulatory pressures on the fintech ecosystem in Europe.
With regulators becoming more stringent, fintech startups face the double burden of increased compliance costs and reduced options for banking partners. Solaris' issues may prompt other BaaS providers to rethink their strategies, particularly in how they balance growth with regulatory obligations.
The Impact on European Fintechs
The shrinking footprint of Solaris' EMI operations has far-reaching implications for fintech startups across Europe.
As one of the leading BaaS providers, Solaris supported a range of digital banking, payments, and crypto projects. Many startups that relied on its infrastructure will now need to explore alternative providers, such as Vodeno/Aion Bank, Treezor, or Railsr, to launch their products.
However, Solaris’ EMI business closure does not occur in a vacuum. It comes at a time when venture capital funding for fintech startups is drying up, forcing companies to look for more stable and scalable partnerships.
Startups that are unable to secure such partnerships may struggle to compete against larger incumbents, who are increasingly entering the fintech space themselves, as seen with JP Morgan’s move into the German market.
What Comes Next for BaaS in Europe?
The setbacks faced by Solaris raise important questions about the future viability of the BaaS model in Europe. While there are still several viable players in the market, the closure of a significant part of Solaris’ operations may lead to market consolidation. Startups could be forced to turn to fully licensed banks or explore acquiring their own licenses to operate independently.
One potential positive outcome is that the pressure on Solaris to focus on profitability may lead it to strengthen its core business in areas such as digital identification services (like its KYC platform) and its partnerships with established tech players like Bitpanda.
However, to remain competitive, Solaris and other BaaS providers must innovate rapidly, offering more flexible, scalable solutions that can meet the demands of both early-stage startups and large enterprises.
Could Solaris's new strategy mean that BaaS becomes a more mature business? Considering the compliance burdens, talent drain, and rising costs, BaaS could become a business only viable for bigger banks and financial institutions, making it less attractive for fintechs and the “new kids on the FinServ block.”
If we leave Solaris's operational and strategic issues alone, it could also be argued that Germany is not the best place for a BaaS business. Although the “made in Germany” stamp still means something, especially in the context of financial services, it also forces financial service providers to raise the bar immediately. Could life be easier for Solaris if fintech were to operate from another European country?
In hindsight, the shrinking of Solaris' EMI business is a cautionary tale for BaaS providers and fintech startups alike. Regulatory pressures, market competition, and financial challenges are reshaping the landscape, forcing companies to reassess their business models.
For BaaS providers, the focus must shift from growth at all costs to sustainable, compliant, and scalable operations. For fintech startups, securing reliable banking partnerships is becoming increasingly difficult, signaling a potential slowdown in the rapid innovation that has defined the industry in recent years.
European BaaS still has a future, but it may look quite different from the one we envisioned just a few years ago. The path forward will require greater regulatory collaboration, enhanced technological capabilities, and a renewed focus on profitability over hyper-growth.
What’s clear is that BaaS businesses will need to invest more in compliance and regulation rather than technology until the regulators are convinced of their resilience and trustworthiness.
Different business models require different technical and BaaS providers. We have worked with all BaaS providers in Europe and can help you find the right BaaS partner to speed up your Go-to-Market. Please contact us to talk about tech partners and to learn more about our BaaS expertise.
