German fintech Solaris struggles to raise funds to execute major contract

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Solaris’s struggle to raise funds has raised doubts over the German start-up’s ability to execute a major credit card contract for Europe’s largest motorists association, in the latest sign of trouble in the European fintech sector.

Munich-based motor association ADAC has approached potential new credit card partners as the Berlin-based banking-as-a-service firm is taking longer than expected to secure €100mn in funding to deliver the project, according to people with knowledge of the matter.

Solaris last year won a 10-year contract to issue ADAC-branded credit cards to the club’s 21mn members. With 1.3mn credit cards in circulation, ADAC has one of the largest co-branded portfolios in Germany. The deal was hailed as milestone for Solaris, which sought to reduce exposure to clients from the fintech sector. The company expected the contract to boost annual sales by more than €100mn, from last year’s revenue of €130mn.

In the wake of rising interest rates investors have grown reluctant to fork out additional cash to start-ups trying to disrupt the financial industry. Klarna’s valuation dropped by more than 70 per cent to €6.5bn in a funding round last year, while UK-based finance firm Railsr went bust.

Part of the €100mn Solaris is seeking is to fund an up front-payment to ADAC. But the bulk is to meet regulatory capital requirements stemming from taking on ADAC credit cards’ €500mn loan book.

Separately from the €100mn fundraise, the fintech, which has a German banking licence, secured €38mn from existing investors, “to strengthen governance and compliance” in July.

Talks between Solaris and existing backers including US credit card group Visa and Spanish lender BBVA, about the additional €100mn are ongoing but have been delayed by the adverse market environment, according to people with knowledge of the situation.

Solaris reported annual losses of €56mn for 2022, or 43 per cent of its revenue. Since it was founded in 2015, Solaris has raised €440mn. Funding rounds in 2021 and 2023 valued the start-up at €1.6bn.

In June, ADAC announced that the migration of its credit card clients to Solaris would be delayed by six months and is now scheduled to be completed in mid-2024. One person familiar with the matter insisted the funding was not a reason for the delay, but rather technical problems at an external service provider.

ADAC has contacted DKB, Deutsche Bank and Hanseatic bank — which all bid for the original contract — to see whether they would consider teaming up with Solaris. One option under discussions involves one of those banks taking over the €500mn loan book on its balance sheet, reducing the need for Solaris to find additional regulatory capital.

Negotiations between Solaris, the motorists’ association and potential partners are ongoing and should be concluded by the end of the year, some of the people said.

ADAC’s doubts are the latest challenge for Solaris, which was hit by the insolvency of one of its most important clients, neobank Nuri, last year. It was also reprimanded by Germany’s financial watchdog BaFin over organisational flaws. The regulator has put the firm under special monitoring, imposed tighter capital requirements and requested to approve new clients.

ADAC said it was “looking forward to the co-operation with Solaris”, calling the fintech its “new technology partner”. It is “assuming” that the migration can be delivered as planned, it added, declining to comment on talks with other partners.

“We will need additional capital next year and are in ongoing talks with investors about that,” Solaris said.

BaFin declined to comment as did DBK, Deutsche Bank and Hanseatic Bank.