Banking-as-a-service startup Solid, formerly known as Wise, filed for Chapter 11 bankruptcy protection on Apr. 7 in the US Bankruptcy Court for the District of Delaware.

Founded in 2018, the Palo Alto-based fintech raised nearly US$81 million in funding. Its last valuation reached US$330 million in August 2022, with investors including FTV Capital and Headline.

The company provided banking, payments, cards, and cryptocurrency products through APIs for fintech and vertical SaaS companies.

Solid is now seeking to restructure or sell its business, according to court documents.

🔗 Source: TechCrunch

🧠 Food for thought

1️⃣ BaaS startups face systemic challenges beyond individual business failures

Solid’s bankruptcy highlights ongoing challenges in the Banking-as-a-Service (BaaS) industry, with Synapse’s 2023 collapse serving as a notable example.

Both companies partnered with Evolve Bank & Trust, which has faced operational problems and regulatory scrutiny, including Mercury recently ending its relationship with the bank 1.

Synapse’s bankruptcy revealed an $85 million shortfall in customer funds and caused operational issues for over 100 fintech clients, with some forced to cease operations due to their reliance on the service 1.

These failures point to vulnerabilities in the BaaS model, where fintechs rely heavily on intermediaries to provide critical banking infrastructure. This creates single points of failure that can have widespread effects on the ecosystem 2.

The industry’s challenges have led to regulatory responses, including the proposed “Synapse Rule,” which would require banks to verify the accuracy of custodial accounts daily. This aims to address reconciliation issues that contributed to Synapse’s problems and potentially Solid’s as well 3.

2️⃣ Investor litigation reveals the heightened legal risks in fintech ventures

Solid’s “significant and costly litigation” with FTV Capital reflects broader legal challenges that fintechs face as they navigate complex regulatory environments while pursuing rapid growth.

The lawsuit from Solid’s Series B investor FTV Capital, which alleged the founders “misrepresented the company’s revenues, customer churn, and general business operations,” underscores the scrutiny investors apply to fintech startups.

Such disputes can be financially damaging for early-stage companies, with Solid diverting significant resources to legal defense before ultimately reaching a settlement just prior to bankruptcy 4.