Retail fintech recorded a slight growth in Q4 2023 with deal value increasing by 5% quarter-on-quarter (QoQ) to US$2.6 billion, a modest rise that was driven by large deals in banking and credit verticals, new data released by PitchBook reveal.

The Q4 2023 Retail Fintech Report, released on March 07, 2024, delves into venture capital (VC) funding trends in retail fintech, exploring the largest rounds observed in the sector during the quarter and sharing predictions for what’s to come in 2024.

According to the report, large rounds of funding to startups in the verticals of buy now, pay later (BNPL), consumer lending and digital banking helped sustain retail fintech funding levels in Q4 2023 despite the prolonged downturn that began in 2022.

During that quarter, the largest round of the sector was secured by Tamara, a BNPL startup from Saudi Arabia, which raised a US$340 million Series C in December. Founded in 2020, Tamara is a BNPL platform that provides users with the option to pay in 30 days or in three installments over 60 days at zero interest. Tamara operates in Saudi Arabia, where it is headquartered, the United Arab Emirates (UAE) and Kuwait. The startup has more than 10 million users and over 30,000 partner merchants, including Shein, Jarir, noon, Ikea, eXtra and Farfetch.

After Tamara, Canada’s Koho raised the second largest round of Q4 2023, securing a US$$277.8 million Series D, according to PitchBook. Koho, which was founded in 2014, offers a full-service spending and savings account with no hidden fees that gives cash back on every purchase, and an integrated app that helps users spend smart and save more. The startup claimed more than 500,000 customers in 2022.

Tabby, another BNPL startup from Saudi Arabia, raised the third largest round of Q4 2023, securing US$250.0 million in equity and US$700 million in debt Series D in December. Founded in 2019, Tabby allows users to split their online and in-store purchases into four interest-free payments. The startup, which is active in Saudi Arabia, the UAE, and Kuwait, claims more than 11 million users and 40,000 brands and businesses part of its network, including Amazon, Adidas, H&M and Samsung.

Other notable deals came from wealthtech and consumer payments. Scalable Capital, a German online brokerage, raised a US$227.8 million Series E; Stash, a New York City-based provider of an investing app, closed a US$40 million late-stage round in October; PaySend, a UK-based international money transfer specialist, raised US$65 million in a late-stage round; and YouTrip, a Singapore-based multi-currency digital wallet, secured US$50 million for its Series B.

Retail fintech VC continues its downtrend

Retail fintech VC funding has been on a downtrend since 2022. While VC funding grew by a mere 5% QoQ in Q4 2023, representing the third quarter in a row where VC deal value increased quarterly, deal value remained down by 18.2% year-over-year (YoY) and continued to sit at its lowest level since Q1 2017.

For the full year, retail fintech companies secured US$10 billion in VC, pulling back 57.5% from the US$23.6 billion recorded in 2022.

In terms of deal count, retail fintech companies recorded 148 VC rounds in Q4 2023. Compared with the 166 deals seen in Q3 2023, this represents a 36.0% QoQ decrease. On a YoY basis, deal count in Q4 2023 was down by 32.1% compared with the 218 deals seen in the prior year period. 699 deals were logged for 2023, representing a 36% drop from 1,093 deals in 2022.

The PitchBook report also dives into the new wave of BNPL startups, projecting that BNPL will make a comeback in retail fintech funding this year.

It highlights the case of Klarna, a Swedish BNPL player that has witnessed tremendous growth. In 2023, Klarna booked its biggest ever year in terms of gross merchandise volume (GMV), nearing SEK 1 trillion (US$96 billion) and increasing by 17% from 2022.

The startup says its revenue increased by 22%, reaching SEK 23.5 billion (US$2.3 billion) in 2023. Absolute credit losses reduced by 29% in 2023 while consumer credit losses declined by 32% YoY. Cost efficiencies led to a 95% improvement in adjusted operating result, helping net result to improve by 76% to a loss of SEK 2.5 billion (US$240 million).

Klarna’s last disclosed post-money valuation stood at US$6.7 billion but recent reports suggest a valuation of around US$20 billion.

Klarna offers BNPL loans, which can be paid in installments, within 30 days, or over monthly payments up to 36 months. It also offers debit cards, a monthly subscription service, and business-to-business (B2B) checkout solutions. Klarna, which operates in European, the US and Australian markets, claims 150 million global active users and two million daily transactions.

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