Berlin. The new CEO of Solaris, Steffen Jentsch, has directly tied the potential for further workforce reductions at the prominent German fintech company to his own success in the role. Speaking at the Fibe industry event in Berlin, co-hosted by Handelsblatt and the Berlin Finance Initiative, Jentsch stated, "If I am successful, there will be no further downsizing – because then we will grow." This statement follows an earlier announcement in late March that Solaris planned to lay off approximately 20% of its roughly 400 employees.
Jentsch, who assumed the CEO position at the beginning of the year, acknowledged the mixed reception from staff. While he described the initial welcome as friendly, he also sensed a pervasive sense of unease among employees. "Everyone knew that things had to change, but it wasn’t clear what that precisely meant," Jentsch remarked, highlighting the uncertainty that has characterized the company’s recent period of transition.
Solaris, once a celebrated name in the German fintech landscape, has been navigating significant financial and operational challenges for several years. In early 2023, the company secured its survival through a funding round that brought in approximately €140 million. However, this lifeline came at a steep price: a dramatic revaluation that saw the company’s worth plummet from a peak of €1.6 billion to under €100 million. During this critical funding phase, major shareholder SBI, a Japanese investor, increased its stake to around 80%, solidifying its dominant position within the company.
The core business model of Solaris revolves around providing a banking license and associated services to other startups, enabling them to conduct financial transactions and offer financial products. Additionally, Solaris offers its banking infrastructure and services to established corporations, including credit card issuance. A notable client in this segment is the German automobile club ADAC.
Navigating a Painful Maturation Process
Jentsch characterized the company’s current phase as a necessary maturation, comparing it to the often-difficult process of adolescence. He identified a historical deficit in understanding regulatory requirements and the intricacies of traditional banking operations as a key challenge. "Many fintechs started with a strong technology-driven focus, underestimating the complexity of regulation and banking," he explained. This realization has underscored the imperative to deepen the understanding of the regulatory environment and to foster closer collaboration with supervisory authorities. Solaris is now actively working to engage with regulators proactively.
The company’s struggles have not gone unnoticed by regulatory bodies. In 2020, the German Federal Financial Supervisory Authority (BaFin) conducted a special audit that revealed significant deficiencies, particularly in anti-money laundering efforts and customer due diligence processes. In response, BaFin increased Solaris’s capital requirements and appointed a special auditor to oversee operations. Subsequently, BaFin mandated that Solaris obtain approval for onboarding new clients, a measure that remained in place and was extended in July 2024 with the reappointment of the special representative.
Embracing AI for Operational Efficiency
Looking ahead, Jentsch outlined a strategic vision for Solaris centered on a significant technological transformation, particularly the integration of Artificial Intelligence (AI). He stated that the company intends to leverage AI to manage all operational processes, emphasizing that while AI will drive efficiency, human oversight and accountability will remain paramount. "The requirements for our team are changing," Jentsch noted. "We need a different skillset from our employees today." He specifically highlighted the growing importance of expertise in artificial intelligence and traditional banking operations.
The ambition is to reposition Solaris as a leading technical service provider for other financial institutions. The company aims to focus on offering standardized, yet highly adaptable, banking solutions. Complex, bespoke solutions for individual clients are expected to become a relic of the past.
To achieve this transformation, Solaris plans to invest approximately €50 million over the next 20 months. Jentsch conceded that this investment alone might not be sufficient to return the company to profitability. Solaris anticipates substantial losses in 2024, projecting a three-digit million euro deficit. While the company expects to remain in the red in 2026, it aims to reduce these losses by one-third. The precise figures for future losses were left unspecified.
Financial Projections and Future Funding
Jentsch forecast that Solaris will continue to require "a three-digit million amount" in the future. However, he expressed confidence that its largest shareholder, SBI, has signaled its willingness to provide the necessary financial backing. The company’s ultimate goal is to achieve profitability and sustainable growth by 2028 at the latest.
Background and Industry Context
The challenges faced by Solaris are indicative of broader trends within the fintech sector. While many fintech companies have disrupted traditional banking with innovative technologies and agile business models, they often grapple with the stringent regulatory frameworks governing financial services. The need for robust compliance, particularly in areas like anti-money laundering and customer protection, can be a significant hurdle, especially for rapidly scaling startups.
Solaris’s business model, which leverages its banking license, places it in a unique position. It acts as an enabler for other fintechs, providing them with the foundational infrastructure to operate legally. This B2B (business-to-business) approach requires a deep understanding of both technological innovation and the complex, often risk-averse, world of banking regulations.
The company’s financial struggles, culminating in a significant valuation markdown, reflect the intense pressure on fintechs to demonstrate clear paths to profitability in an increasingly competitive market. Investors, while initially drawn to the disruptive potential of fintech, are now demanding more tangible financial returns and sustainable business models.
The involvement of BaFin underscores the critical importance of regulatory compliance in the financial sector. The watchdog’s interventions highlight the potential consequences of failing to meet stringent standards, particularly concerning financial crime prevention. For a company like Solaris, which operates at the intersection of technology and regulated financial services, maintaining a strong relationship with regulators and proactively addressing compliance issues is not just a matter of good practice but a fundamental requirement for survival and growth.
The strategic pivot towards AI-driven processes signifies a forward-looking approach to operational efficiency and service delivery. By automating and optimizing core banking functions, Solaris aims to reduce costs, improve accuracy, and enhance scalability. This move aligns with a broader industry trend of adopting advanced technologies to gain a competitive edge. However, the successful implementation of such a strategy requires not only technological investment but also a significant upskilling of the workforce to manage and interpret AI-driven insights and maintain ultimate control over critical financial operations.
The commitment from SBI to continue supporting Solaris financially is a crucial factor in the company’s recovery plan. As the majority shareholder, SBI’s continued investment demonstrates a belief in Solaris’s long-term potential, despite the current financial headwinds. The projected timeline for profitability by 2028 suggests a period of continued investment and restructuring, with the expectation that the strategic changes implemented under Jentsch’s leadership will eventually yield positive financial results.
The path forward for Solaris will likely involve a delicate balancing act between technological innovation, stringent regulatory adherence, and sound financial management. The success of Steffen Jentsch’s tenure will be measured not only by his ability to navigate these complexities but also by his capacity to steer the company towards sustainable growth and profitability, thereby securing its future as a key player in the European fintech ecosystem. The coming years will be critical in determining whether Solaris can successfully emerge from its current challenges and fulfill its ambitious vision.