In mid-2020, Kabbage, one of the best-known online lenders for SMEs in the US, was acquired by American Express (NYSE:AXP). At that time, co-founders Rob Frohwein and Kathryn Petralia said this was their first time sitting in the seat of the entrepreneurs selling a company and that while there are mixed feelings, they were selling a company “[they] have long admired that shares [their] vision to strengthen small businesses.”
Much has happened since the sale to American Express. COVID continues to linger in spite of widespread vaccinations and smaller firms are working hard to reach or surpass pre-pandemic operational levels. Recently, Crowdfund Insider connected with Kabbage President Kathryn Petralia for an update on the business since the acquisition. Petralia is one of the most prominent female Fintech founders in the United States.
Our conversation with Petralia is part of an ongoing series in partnership with the Cambridge Centre for Alternative Finance, which is in the midst of The Global Covid-19 FinTech Market Impact and Industry Resilience Survey (qualtrics.com).
Since being acquired by Amex, what has changed for Kabbage?
Kathryn Petralia: We now have the backing of American Express! Our product suite remains the same and we’re rapidly relaunching our cash flow management solutions to millions of new and existing small business customers, including Amex’s first online business checking account, Kabbage Checking, and our flexible lines of credit, Kabbage Funding.
With the advent of SME checking, is Kabbage emerging as more of a neobank [offering bank-like services]?
Kathryn Petralia: We are a cash-flow management platform for small businesses, providing a central app from which they can run their business. Our expansion into business checking accounts is to support our customers run their business—not to define who or what we are. Opening a business checking account is often the next immediate step business owners take after becoming incorporated, and we saw that as an opportunity to start our relationship with customers at the beginning of their journey to manage cash flow.
What is next for Kabbage after lending/checking/payments?
Kathryn Petralia: Our platform is built so that each product enhances the other. We’re excited to get all our products in market so U.S. small businesses can benefit from their interconnected features. From there, Kabbage plays an important role in helping American Express continue its expansion beyond its Card business and we’ll continue to develop ways that allow small businesses to run and manage their business under a single platform.
Being part of Amex, Kabbage is offering a “broader set of cash flow management tools.” What are these other features?
Kathryn Petralia: We recently launched Kabbage Checking, which is an online business checking account with no monthly fees, no maintenance fees, and offers a 1.1% APY on balances up to $100,000. Customers can deposit checks via our mobile app, automate bill pay, write checks, deposit cash in-person at 90K retail locations nationwide, access over 19K in-network ATMs for free, and use our unique Reserves feature, which allows them to save towards company goals like expansion, taxes or holidays.
We’ve also relaunched Kabbage Funding to millions of existing customers. It offers flexible lines of credit between $1,000 and $150,000 to U.S. small businesses. Customers connect their real-time banking data for a funding decision in minutes, with no origination fee nor maintenance fees. Customers can take out a loan for the amount they need, whenever they need it, to help cover cash-flow gaps or invest in their growth.
Other products include Kabbage Payments, helping small businesses send professional invoices and accept credit card payments, and Kabbage Insights, which analyzes a customer’s real-time data to provide them helpful insights and forecasts about their cash flow. We look forward to making these solutions broadly available to small businesses in the near future.
What is your advantage in regards to other online SME lenders? Speed of funding? Interest rates?
Kathryn Petralia: Kabbage was one of the first online lending platforms to enter the market back in 2009. Over the course of 11 years, prior to the AMEX acquisition, Kabbage helped over 500K small businesses access over $17 billion—the most of its peers. Joining Amex, we are coming from a position of strength, combining our technology with their global scale. We see great opportunity to deliver cash-flow solutions to small businesses and meet more of their needs with a suite of products that are unique in the marketplace.
As your core market is servicing SMEs. Recently, you indicated these firms are struggling to hire new employees. Is this due to the COVID support payments? Something else?
Kathryn Petralia: The labor shortage is impacting all companies, including small businesses. Bear in mind, small businesses employ 60% of all new jobs and represent 99% of all companies in the U.S. They represent an enormous portion of our workforce, so this labor shortage impacts the SMB economy significantly.
In our most recent Small Business Recovery Report, over a quarter of respondents (26%) said the primary reason for hiring challenges was candidates didn’t need additional income due to stimulus payments or unemployment benefits. Nearly one in five (19%) said candidates are prevented from accepting job opportunities due to obligations they have at home whether to care for children or family. We’re also hearing from small businesses that many candidates applying are simply not qualified for the role, so there are multiple factors in place.
What are other challenges SMEs are facing, or will face, in the coming year? Is the existence of virtual/hybrid environments the new normal?
Kathryn Petralia: I wish I had a crystal ball that could forecast all the challenges entrepreneurs will face, but I know for certain they will face challenges both old and new. As we’ve seen during one of the most dire crises for SMBs this past year, I know they are highly adaptable and resilient. The question is not what the challenges will be, but rather how they will respond and adapt as they rise to meet them.
In regards to lending, what does Kabbage anticipate for 2021? Will you be expanding debt products?
Kathryn Petralia: We look forward to opening Kabbage Funding to more U.S. small businesses later this year and have our eyes on the future to expand our offerings and help our customers thrive.