Berlin Solarisbank is preparing for an IPO. It could be in the third quarter of 2022, explains CEO Roland Folz in an interview with the Handelsblatt: “We want to be IPO-ready by the middle of the year.”
Since then, the Berliners have been considered a “unicorn” – a company valued at more than one billion euros.
Before going public, however, a number of conditions would have to be met. Among other things, the changeover to the IFRS accounting standard would have to be completed, as well as further optimization of operational processes and the fight against financial crime, compliance
Solarisbank offers its banking license to other fintechs, who can thus attract customers more quickly. The latter can offer financial services under their own flag, with Solarisbank always in the background. A business with potential: in 2022 the bank should increase its earnings further to around 150 million euros, says Folz. That would be significant growth: According to Folz, the bank is expected to generate income of more than 90 million euros in 2021 – including the income from the recently acquired competitor Contis. In 2020 they came to 35 million euros.
Grown by 80 to 90 percent per year – but not profitable
“We have grown by around 80 to 100 percent per year over the past few years. For the future we have set ourselves a growth corridor of 40 to 60 percent, ”says the head of Solarisbank. However, the bank will not be profitable in 2021 or beyond. “We won’t be making a profit in the medium term. The focus is on growth and investments in our European platform, ”said Folz.
The CEO of Solarisbank sees the acquisition in England as the ideal complement.
(Photo: Max Threlfall / SolarisBank)
Could accelerate the development of the possible IPO. Contrary to previous reports, this should be classic. “In principle, the question has not been decided, but the classic route via an IPO is a good option,” explains Folz. “Then we have the listing in our own hands and are not dependent on third parties as is the case with a Spac.”
In the financial world, Spac is the name given to stock exchange vehicles that were highly hyped at the beginning of the year, but are now viewed critically by many market observers. Solarisbank had also considered an IPO via Spac.
Investment banks have not yet been mandated. This usually happens around six months before the IPO, possibly in the spring. According to Folz, however, it is clear that the IPO will take place in Europe – a listing in the USA is not an issue due to the lack of US business in Berlin.
Bad cards for Frankfurt as a stock exchange
Nevertheless, Frankfurt has rather bad cards. “We’re going to where the investor environment for technology and growth companies is strongest,” says Folz. “In Europe this is especially the case in Amsterdam and London. We are looking for the best possible access to investors who want to participate in the Solarisbank growth story in the long term. “
Folz has headed Solarisbank since 2017. For the carpenter’s son from Elchingen near Neu-Ulm, the chief post is “a dream job”, as he says. Since the older brother took over the family business, Folz was allowed to study: business mathematics in Ulm, business administration in Chicago. His doctoral thesis dealt with the “Marketing of asset investment customers in private customer business”, a topic with a future: As early as 1998, at the age of 34, Folz became a member of the Board of Directors of Direkt-Anlage-Bank (DAB). He later worked for Deutsche Bank. The 57-year-old wants to stay at Solarisbank for a while.
New headquarters
Solarisbank recently moved into its new headquarters in Berlin’s Osthafen. 4120 square meters in a new building based on the industrial architecture of the turn of the century. From the top floors you have a wide view over the Spree and the Oberbaumbrücke across Berlin. The food delivery service Lieferando is right next door.
Solarisbank is currently primarily concerned with integrating its British competitor Contis, which it bought in the summer. With him it should succeed in appearing as a leading “Banking-as-a-Service” service provider throughout Europe.
Since it was founded in 2016, the fintech has received 350 million euros from investors.
(Photo: © 2019 Bloomberg Finance LP)
The number of end customers is actually no longer known, says Folz, “But if we get the regulatory approval for the purchase of Contis, then we will be in the order of about five million end customer accounts.” Twelve months ago, Solarisbank had around 320 Had employees, now there are Contis 650 in eight countries: seven in Europe and India. “In this respect we have developed enormously.”
Still, there is still a lot to do: “In principle, we have three licenses: a German full banking license, a Lithuanian and an English e-money license. Now we will harmonize the products that we offer under these licenses step by step. ”In the end there will be a uniform Solaris platform.
Private customers undesirable
Solarisbank does not want to advertise private customers in the future either. Among the corporate customers, the Berliners had recently won fewer new customers, but big fish. One partner is the electronics group Samsung, for whose payment service Samsung Pay the Berlin-based company provides the infrastructure. Solarisbank counted 17 million users of Samsung devices: an impressive potential customer base. Other partners include the smartphone broker Trade Republic, neobanks such as Nuri (formerly Bitwala) and Vivid Money or online commercial banks such as Penta and Kontist.
Many of the customers have grown strongly in recent months and years – good for Solarisbank. However, every partnership between the Berliners theoretically has an expiration date. If the customers are successful, sooner or later they could seek their own banking license in order to cover the entire added value: a topic that is already being discussed at Nuri in the future. The smartphone bank N26 followed a similar path: initially it used the Wirecard banking license, later N26 applied for its own.
“Solarisbank is very successful in its niche,” said Volker Brühl, Managing Director of the Center for Financial Studies at Frankfurt’s Goethe University, praising the development of the bank, which was founded in 2016. In order to be attractive on the stock exchange, however, the necessary growth story is still missing.
“The service business that Solarisbank currently operates is solid and not very risky. It is questionable, however, whether the necessary size for the capital market can be found. ”According to Brühl, Solarisbank must broaden its business base, for example through more lending business.
Expansion of the lending business
The embassy has arrived at the east port. “The core of our offer is the account,” says Folz. That is cheap thanks to efficient processes. Solaris relied on technology early on, and the core banking system was essentially developed in-house – “the first cross-border core banking system in Europe”. The result: “For some competitors, it costs more than 65 euros to operate an account per year. For us, the value is well below a third, ”says Folz. Within five years, they want to offer over 20 million accounts in Europe, a quadrupling of the current status.
“Building on this, our partners use the card offers, investments and credit products,” Folz reports. As early as the end of 2020, Solarisbank was one of the first German banks to apply for a crypto custody license. Now the crypto brokerage should also grow. In addition, the bank is applying for the 2.5 million card portfolio of ADAC and Amazon, which is looking for a new banking partner after the departure of the Berliner Landesbank, as the portal FinanzSzene.de reported. There is no comment from Folz on this.
Another growth driver is the credit area. “Loans over 100,000 euros are not our focus. We rely on automated consumer credit, ”says Folz, using the catchphrase“ Buy now, pay later ”.
N26 as a “warning example”
One thing is clear: if the partners grow and acquire additional end customers, that is good for the economies of scale of Solarisbank. But there is also a problem: In the event of dubious transactions, Solarisbank is solely responsible to the financial supervisory authority Bafin. It also bears the reputational risk for mistakes made by the partners.
This can become a problem with the important issue of combating money laundering, for example. The best-known German fintech, N26, recently had major problems here. Folz emphasizes: “I don’t have any insides on N26. But what was now in the media is of course a cautionary example for us. “
At Solarisbank, compliance was “one of the most important components from the start”. “Even a small bank has to adhere to all requirements. And that is of course an enormous challenge, especially for a young company, ”said Folz. “You shouldn’t fool yourself: It devours a lot of resources and requires continuous improvement.” Nevertheless, combating dark business transactions is essential.
An example from the year 2021 shows that Solarisbank can also use protection here: Recently, the Berliners have been working with Feedzai from Portugal on combating money laundering. The company offers special tools for analyzing large transaction sums, such as artificial intelligence solutions. And internally there is also an increase. “Around ten percent of our employees already work in compliance,” says Folz. The CEO does not want to give an exact number. But these departments are also on a growth path.
More: N26 valued at around eight billion euros – despite the anger with the Bafin