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Market Map: Alternative lending extends hand to struggling retail fintech

VC investment into fintech has largely skewed toward B2B-centric startups, leaving retail service providers in a slump, though Q3 saw an uptick in deal value driven by alternative lending specialists.

Retail fintech has seen a slowdown with consumers and investors. The vertical has been losing ground to enterprise fintech, after the pandemic momentum surrounding online-only banks and virtual service began to subside.

Still, there are signs of life with Q3 witnessing an uptick in deal value, driven by startups operating in the alternative lending segment. These companies are nonbank startups and platform providers that offer various loans and underwriting services to consumers. Alternative lenders often cater to credit-underserved communities, those who have low income and people who have little to no credit history.

These kinds of startups have gained traction with investors who are betting on new competitors to legacy banks. Due to limited regulations like capital requirements and the lack of physical locations, these startups offer lower fees and competitively priced interest rates, attracting consumer and VC investment.

The market map below outlines the alternative lending segment in the retail fintech vertical and shows where investors are placing their bets.

 

To go deeper, read our Q3 2023 Retail Fintech Report. PitchBook subscribers can explore the full market map with details on more than 2,000 companies.

Spotlight: Alternative lending

PitchBook analysts have broken down the segment into three distinct areas:
 
  • Retail and marketplace lending: startups focusing on personal, auto, student and other term loans to retail consumers. Included in this subsegment are crowdfunding and P2P lending platforms.
  • Real estate: Loans to consumers like mortgages, commercial real estate loans, rent-to-own financing and other new financing models.
  • Microlending: Smaller loans to consumers, usually issued in developing markets and countries through P2P models.

How deals and exits are trending

 

In Q3, alternative lending startups raised $1.25 billion across 25 deals, according to the report, up from $435.4 million raised across 29 deals in Q2. In the broader retail fintech vertical, quarterly deal value was up 53.2% from the previous quarter with $2.4 billion raised across 149 deals.

Notable deals include Loft, a Brazilian real estate selling and lending specialist, raising a $100 million Series E from Citi Ventures in August. More recent notable deals include the Italian consumer lender Qomodo raising $37 million from Fasanara Capital in November and automotive lender Tenet raising $30 million Series A equity and debt round led by Nyca Partners in November.
 
 

Exit activity in the retail fintech space has been muted throughout 2023. PitchBook tracked 45 exits worth $2.9 billion. In the vertical, alternative lending has been the best exit performer, however, the report shows. Six exits worth $2.16 billion have been tracked compared to last year's 17 exits totaling $386.2 million.

Virtual mortgage lender Better went public in May via a SPAC, while Ribbon, another real estate lender, was acquired for an undisclosed amount in May by EasyKnock.

Featured image by Tanja Ivanova/Getty Images

  • jacob-robbins-headshot.jpg
    About Jacob Robbins
    Reporter Jacob Robbins covers artificial intelligence and the venture capital ecosystem for PitchBook. Based in Seattle, Jacob is originally from Massachusetts and holds dual degrees in political science and cinema studies from the American University. His work has previously appeared in Air Mail and Business Insider.
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