Keeping Up With Kabbage

On Friday, American Express announced that it had completed its acquisition of Kabbage.

“Kabbage, An American Express Company will continue to provide quick and easy cash flow management solutions for small businesses, now backed by the trust, service, and security of a American Express,” American Express wrote on social media. “We’re excited to welcome Kabbage’s talented colleagues to American Express. Together we will combine our over 60 years of experience backing small businesses with Kabbage’s innovative technology to support our customers through this challenging time, and help them get back on their feet and thrive.”

Meanwhile, below is a copy of a Q&A deBanked had with Kabbage co-founder Kathryn Petralia that appeared in our magazine’s July/August issue.

Q: How specifically do you think the pandemic will change the way SMEs bank?

A: The pandemic will first change with whom they bank, and that choice will change the way they bank. For perspective, one hundred percent of Kabbage customers have a bank account, but very few of them can get a loan from their bank. We launched Kabbage Checking earlier this year to serve the smallest of businesses without sacrificing the features they expect and offering other products banks don’t. We’re focused on making cash flow tools accessible to the businesses traditionally underserved and overlooked, and the pandemic has been a catalyst for businesses to find new solutions.

Q: How might the dynamic of banking change after the crisis?

A: It was well-reported that businesses without an existing credit relationship with their bank were turned away from applying for PPP loans. We’ve heard directly from many of our PPP customers that this will compel them to change banks, and the demand for Kabbage Checking has reflected that sentiment since its launch. In the short term, businesses of all sizes and ages will seek out and sign up for new, tech-forward banking partners. In the long term, that shift will change customers’ expectations of what banks should offer. For example, prior to the PPP, Kabbage had issued well over a billion dollars to customers during non-banking hours. On-demand, 24/7 access to funding and cash flow insights, or faster settlements and money transfers will soon become commonplace, and large retail banks will need to adapt if they want to capture or reclaim these customers.

Q: How are these changes likely to impact alternative lenders and funders?

A: For starters, single-product lending companies will realize they must diversify their offerings in order to compete in the new financial-services marketplace. I would expect to see lenders launch new products to more resemble a bank. Conversely, traditional banks will need to begin adopting automated ways to serve customers with a tech-forward experience. Especially in the new normal where customers may be apprehensive about in-person banking meetings, they must adapt online to acquire and serve customers.

Q: What’s still needed to help Main Street recover?

A: The PPP was only the first phase; we’re not out of the woods yet. Businesses now need to restart and eventually grow. The crisis made business owners realize they need tighter controls over their cash flow, as many found themselves on the back foot and ill-equipped to withstand a long-term crisis such as the one through which we are all muddling.

They’ll need cash-flow tools to be more prudent and appropriately plan for similar events. Having said that, it’s not only on the shoulders of small businesses or tech solutions. They need customer demand, and local economies need to begin to reopen safely so consumers feel comfortable returning to normal commerce. That will take the support of cities and states encouraging consumers to shop local so small businesses have greater incentive to recall their employees and get back to work.

Q: How can alternative lenders and funders best play a role in this recovery?

A: Much of what we’re already doing is exactly what our economy needs. For the most part, fintech companies serve the customers banks won’t or can’t. That reality is unfortunately unchanged today. That’s why during the pandemic Kabbage made every effort possible to provide products that helped SMBs through this crisis. With respect to PPP, we helped nearly 300,000 small businesses access over $7 billion, helping preserve an estimated 945,000 jobs. Our payments product saw a near 4X spike in adoption as businesses sought contactless payment options. We built www.helpsmallbsuiness.com in three days to allow any small business to generate needed revenue by selling online gift certificates. We also launched Kabbage Checking, giving small businesses a new banking option, and Kabbage Insights remains available and free to access for any small business.

Q: What changes do you expect to see in the alternative lending and funding industry as a result of the pandemic?

A: Everyone will expand their services. Whether it’s larger companies expanding their solutions through acquisitions, or start-ups investing beyond their primary product, everyone will aim to enhance their offerings to give customers more data-driven products that help them rebuild.

Q: Kabbage just agreed to be purchased by American Express. Should we expect to see more consolidation in the alternative lending/funding space? If so, over what time frame and why do you expect this to happen?

A: I would not be surprised if we saw more deals announced before the end of the year.

Q: Tell us a little about why Kabbage decided to sell and why the timing was right?

A: For us, it has always been about finding the right company with the right mission and intentions. We just happened to be in the middle of a crisis when the conversations started, despite having the financial capacity to support operations for multiple years. American Express shares our vision to be an essential partner to small businesses, and we couldn’t be more excited at the opportunity to continue the important work of providing solutions and innovative capabilities that address a range of small business cash flow needs alongside AmEx.